September 16, 2020
Rachel Wellhausen (Texas at Austin)
(with Donna L. Feir, Federal Reserve Bank of Minneapolis and Calvin Thrall, University of Texas at Austin)
Abstract
Consider a consumer-facing bank with plans to open a branch in a developing country and thus become a multinational firm. The developing country’s government supports the effort, as its territory is a “banking desert” bereft of local bank branches, where citizens often rely on predatory substitutes or services from abroad. Moreover, a foreign governmental organization has a specific mission to promote increased formal financial services in this country. Yet the domestic consumer base shares a long-standing mistrust of banking and scant-to-no exposure to foreign-owned ventures in their territory. How can these varied stakeholders achieve their overlapping goal of improving these citizens’ access to capital?
We leverage such a scenario to record individual-level perceptions of FDI, in the real world, before the FDI “treatment” takes place. Our setting for studying FDI and development is novel: a bank owned by one American Indian nation intends to open a branch on another nation’s reservation, in the context of the Federal Reserve’s explicit mission to improve access to capital in Indian Country. Without any deception, we use survey experiments to test whether tribal government and Federal Reserve endorsements shape tribal members’ support for the branch, in an environment marked by severe poverty, low financial literacy, and widespread concern that openness threatens sovereignty. We challenge empirical international political economy scholars to question the nation-state as the default unit of analysis, as in fact many polities have the autonomy to make decisions about openness to economic globalization.