Capital Preferences: International Capital and Government Partisanship

Many argue that government partisanship influences the size of investment flows into stocks and bonds. But existing literature tells us little about how international capital flows influence election outcomes. I argue that passive investment into stocks, bonds, and other debt instruments—in other words, portfolio investments—increases political contributions to right-wing parties. This investment generates resources for domestic capitalists. These owners of capital then channel these resources into political contributions to right-wing parties and enhance those parties' electoral position. Thus, passive investment bolsters the electoral chances of right-wing governments. I illustrate this process with a formal model of special interest politics in which lobbies operate under budget constraint. Using a new data set on political contributions and statistical analyses for a sample of states from 1980–2009, I find support for my general argument.