Does the OFDI Promote Bilateral Political Relations?

This paper finds that there is an inverted U-shaped relationship between OFDI and bilateral political relations. Moderate investment relations can improve bilateral political relations. But too close investment relationship and excessive investment dependence will make the bilateral political relationship tend to be tense. When the dependence of investment exceeds 23.6%, bilateral political relations will shift from friendly to tense relations. The mechanism study finds that the host country's fear of over-reliance on investment and intensified competition is an important reason for the tight bilateral political relations caused by the close investment contacts. After the financial crisis in 2008, the inverted U-shaped relationship between OFDI and bilateral political relations became more apparent. Further research finds that the inverted U-shaped relationship between the OFDI and the bilateral political relationship only exists in countries not along the Belt and Road. JEL codes: F10, F15, O17