Threats to Foreign Equity Investments in International Capital Markets: Nationalism and Militarism

Even though financial markets have become more integrated and international capital now moves more freely across borders, we argue that access to foreign equity investments still remains a political decision, and this policy decision is a function of the country's nationalistic and militaristic sentiments. We use military spending as a proxy for militarism and nationalism, and show that countries with high militaristic sentiments have lower foreign equity investments. We also look at bilateral equity flows and find that a pair of countries simultaneously having greater increases in militarism has lower bilateral equity investments.