This paper examines the tendency of national economies to favor other former members of the same colonial system as destinations and/or sources of foreign direct investments (FDI). According to a theory of comparative international institutional advantage developed in the paper based on recent findings emerging from the international relations and economics literatures, the existence of a positive connection between past colonial ties and contemporary FDI relations is reasonable to expect. The basic argument is that past colonial ties facilitate the establishment of institutional institutions that help address FDI barriers and thus grant an advantage to former metropoles or colonies to invest in each other’s economies, relative to others. The study then shows that such a tendency indeed exists, albeit with differences in intensity across colonial systems and over time. The case of Portugal’s FDI relations with former colonies provides further empirical evidence regarding the mechanism of influence through institutional channels, rather than power asymmetry or cultural linkages.

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foreign direct investment (FDI),colonial ties,international institutions,BIT,political risk,transaction cost