Foreign capital poses major challenges for nation states. In order to receive foreign investments, states need to make certain adjustments in their investment regimes. Not every state with attractive economic endowments, such as significant natural resources, cheap labor, large domestic markets or supporting industries, can successfully attract foreign capital. While these factors are important, foreign investors also look for various legal, fiscal and administrative guarantees and incentives that can secure their property and contract rights throughout the life of their projects. Considering the fierce competition for foreign investment around the world, host governments that need outside financing and expertise cannot overlook these demands from international investors. In order to provide stability, predictability, consistency, and some level of flexibility in their investment environments, governments need to overcome domestic opposition to the terms offered for investors by either excluding or winning over the consent or acquiescence of nonbeneficiaries. As such, domestic politics plays an important role in providing the conditions under which foreign capital is attracted.

Few people would deny that politics matters in the ability of a country to attract FDI. The devil, however, is in the details. What kind of a political arrangement is the most conducive to foreign investors? Which political institutions can better provide for the needs of the investors by shaping the interactions between the opponents and proponents of foreign investment in the economy?