Why are politicians selective in granting investment incentives to foreign direct investment (FDI) projects? One understudied reason is that politicians want to minimize backlash from voters. In this article, I present the first study to systematically analyze voter preferences toward investment incentives. I theorize that voters should be more likely to support investment incentives for FDI projects that they perceive as “high quality”—that is, projects that voters perceive to be highly effective in improving the living standards of their communities. As a result, I expect that politicians who support low-quality FDI projects with incentives will lose voter support. A factorial survey experiment in the United States provides evidence in favor of this argument. Voters reward politicians only if they provide investment incentives to high-quality projects. An additional conjoint survey experiment highlights the importance of project characteristics that indicate high quality in increasing the approval of investment incentives. To demonstrate the external validity of these experimental results, I present descriptive evidence that illustrates the consistencies between the determinants of investment incentives for FDI projects and voter preferences.

Domestic Investment Laws (DILs), a prominent tool of contemporary unilateral International Economic Law (IEL) in the context of the Liberal International Order (LIO), consistently provide for investment incentives as a key aspect of domestic industrial policies geared to influence investment location decisions. The various types of investment incentives include fiscal measures to attract investment, direct subsidies, and other regulatory measures aimed at creating favorable administrative and regulatory conditions for investment. This article analyzes how the provisions of the World Trade Organization (WTO) Agreements contain basic disciplines and set limitations for the distortive effects of investment incentives. It is argued that the relevance of WTO law for domestic investment incentives should not be under-stated; rather, DILs providing investment incentives should be treated as a limited exception to the ongoing move from international to domestic in the era of the LIO.