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Regional integration and the regional risk paradox

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  • Alday, Sandra Seno

Abstract

How does regional economic integration affect the risk exposure of multinational enterprises (MNEs)? Investigating firm regionalization patterns, I uncover evidence of the regional risk paradox: as MNEs regionalize to exploit the lower risk environment offered by regional economic integration initiatives, they ultimately increase their regional risk exposure by deepening their commitment and embeddedness in regional business networks. Informed by the Theory of the Regional Multinationals and by theories of regional integration, I employ a social network lens to investigate the evolving structure of business relationships in regions governed by different regional integration frameworks. I then explore the implications of these evolving relationship network structures on the transformation of regional business risk. I find that moderately integrated regions lower transaction costs to moderately low levels, thus encouraging moderate MNE regionalization. This leads to moderate MNE embeddedness in loosely coupled regional business networks and a moderate increase in regional risk. By contrast, deeply integrated regions lower regional administrative distance to very low levels and encourage intense MNE regionalization. This leads to deep MNE embeddedness in tightly coupled regional business networks and a significant increase in regional risk.

Suggested Citation

  • Alday, Sandra Seno, 2022. "Regional integration and the regional risk paradox," European Management Journal, Elsevier, vol. 40(5), pages 793-808.
    • Handle: RePEc:eee:eurman:v:40:y:2022:i:5:p:793-808
    DOI: 10.1016/j.emj.2021.10.006
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