Essays on Institutional Design and the Global Political Economy

Global investment relies on trust on both the capital-exporting side and the host-state side. Investors put money into unfamiliar environments where, once the investment is sunk, future policies are mostly outside their control. At the same time, host states worry that once political concessions are made, investors are no longer incentivized to keep investment flowing. As a result, both sides may have reasons to renege after cooperation begins, which makes trust a core challenge in global investment. In this three-paper dissertation, I examine why trust in global investment fails from the angles of judicial politics, global capital markets, and interstate bargaining. The first paper looks inside developing host states. It argues that when local policymakers face pressure to attract foreign capital, they may choose targeted judicial intervention instead of formal judicial reform. Targeted intervention allows them to generate good signals quickly without fully giving up control, while formal reform is more credible but can also risk generating a bad signal that deters investors. The second paper switches the angle to global capital competition. It studies when Western FDI gives capital-exporting countries leverage to pressure host states to improve governance. I argue that stricter compliance requirements create costs for Western firms operating in institutionally difficult environments. If these firms exit, host states may have incentives to reform to attract them back. But this leverage only works when alternative sources of capital are limited. When rival powers such as China or Russia provide unconditional capital, host states can avoid reform by substituting away from Western investors. The third paper, co-authored with Shiyan Cao, studies the issue from the angle of the engagement relationship itself. We ask when a dominant country sustains economic engagement with a rising rival, even when trade itself increases the rival's political capacity. Together, the three papers argue that expectations in global investment are fragile because trust can be strategically subverted after cooperation begins.