The Effect of U.S. Government Statements On U.S. Outbound FDI Flows

Can national governments influence outbound foreign direct investments (FDI) flows? This paper introduces a possible channel of influence by examining the Investment Climate Statements issued by the U.S. State Department. Utilizing a novel method in textual analysis, the author converts the documents from 2014 to 2021 into sentiment scores by comparing the cosine similarity of each document's embedding vector with that of positive and negative anchors. The study shows that sentiment scores can affect U.S. FDI flows into each country, but not World FDI flows after adding control variables. A higher sentiment from the statement would increase U.S. FDI flows into a country while a lower sentiment would decrease U.S. FDI flows. Moreover, to serve U.S. foreign policy interests, the statements should contain geopolitical considerations in their assessments of each country's commercial potential. Closer alignment with the United States should increase the sentiment of the country, while farther alignment would decrease the latter. The results are robust alongside prevailing predictors for FDI flows in the literature, suggesting that U.S. Investment Climate Statements can exert independent effect upon U.S. outbound FDI.