The US election is neck-and-neck as the country wakes up after a tumultuous election night and due to state laws regarding vote counting, the result of one of the biggest electorate turnouts in a hundred years will be hanging in the balance for a little while yet.

But the uncertain outcome of the early hours of November 4 is not all that is on voters’ and investors’ minds: the looming threat of a disputed election emerges as far more ominous for the “land of the free”.

The incumbent President Trump has said he will take the matter to the US Supreme Court to stop the counting of mail-in ballots, following his groundless claims that such a voting process is riddled with fraud. Claims he has been voicing for months. Now, he has added to this the assertion that counting votes after election day is also “fraud”.

As votes are totted up across the country in key battleground states, such as Pennsylvania and parts of the Midwest, might a disputed election impact the country’s foreign direct investment (FDI)?

James Knightley, chief international economist at ING, says that should the dispute spill over into the coming weeks, “it isn’t great news, but isn’t a game changer for investment”. 

“The fundamentals of the US economy remain attractive. Both Biden and Trump are keen to promote employment in the US and will actively encourage investment in the US,” he adds.

Mr Knightley argues that “a constrained Biden presidency may be best for FDI on the basis that he is more likely to try and push on with investment projects, particularly ‘green’ projects”.

Tied as they are to the fundamentals of democracy, domestic elections are often used as a proxy for political stability and respect for the rule of law by foreign investors looking to expand overseas. For this reason, FDI tends to vary around election time in developing countries with a less robust democratic history.

Sean Goss, associate professor at the Graduate School of Business, University of Cape Town, notes that FDI is indeed affected by the “accumulation of democratic capital”, characterised by a society’s gradual assimilation of the belief in democratic rights. 

In his paper entitled “FDI and Elections in Sub‑Saharan Africa”, Mr Goss looks at the relationship between FDI and elections among 37 countries in the region between the years 1972–2012. 

His findings show that FDI is deterred less by perceived unfairness as by behavioural unfairness, suggesting that “FDI is more concerned with overt election manipulation than with the extent to which the election is deemed free and fair”.

Naturally, the US is not sub-Saharan Africa and despite Mr Trump’s desire to manipulate the voting process, it is unlikely to morph into an ersatz democracy overnight.  

Arun Pillai-Essex, Verisk Maplecroft’s US lead analyst, says that Mr Biden’s chances of passing the 270 electoral votes threshold look solid and expects him to be declared president today [November 4] or in the coming days.

“I just don’t see any tangible FDI impact from several days of uncertainty,” Mr Pillai-Essex remarks. 

Nonetheless, as Verisk Maplecroft has outlined in a recent report, a narrow Biden victory would present the most “salient” risks to stability, as the scope for civil unrest and transition risk remains intact. 

Whatever happens, the US’s democratic capital, accumulated since 1776, may not be as safely guarded as it had once been taken to be.