Working Paper
The authors investigate the relationship between political ideology and firms’ global sourcing strategies. Using a quasi-experimental setting focusing around foreign elections, the authors find that an increased ideological distance between a U.S. firm and a foreign government leads it to reduce imports from those countries.
Firms with high R&D intensity are particularly sensitive to these ideological changes, while those with long-established supply chains demonstrate less sensitivity. The impact of political ideological distance on sourcing is amplified in countries with strong institutions, where ideologically different regulations are more likely to be passed and enforced.
Ex-post, firms that reduce sourcing from ideologically divergent countries have mitigated reputational risks related to environmental, social, and governance (ESG) concerns.
