A note on cabinet’s policy orientation and gross capital inflows in OECD countries

Abstract By constructing a new measure of cabinet policy orientation, we demonstrate that transitions from state-oriented to market-oriented cabinets are associated with higher direct investment inflows. Product market reforms are more conducive to the inflow of direct investment under cabinets that prefer a state-oriented economy. Labor market reforms significantly boost direct investment and portfolio investment under governments favoring a market-oriented economy.