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Bringing the Company Back In: A Firm-Level Analysis of Foreign Direct Investment

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  • Colin M. Barry

Abstract

The industry standard for studying multinational corporations (MNCs) has been to evaluate patterns in aggregate country-level measures of foreign direct investment (FDI). Though certainly related, these data are at best a proxy for the actual commercial and productive activities of multinationals that most political scientists purport to be interested in. Simply put, this is a very indirect way of testing theories about the sociopolitical and economic factors that motivate MNCs’ choice of host countries. This article introduces a new firm-level data set designed to get around this problem by permitting more direct analysis of multinationals’ foreign operations. It then revisits the relationship between regime type and direct investment, finding evidence that MNCs are more likely to establish new subsidiaries in democracies than in nondemocracies. However, further analysis reveals that the strength of this relationship varies by context. Specifically, MNCs rely on regime type as an indicator of political risk when they lack an existing relationship with the host state. In addition, those operating in extractive industries are generally less responsive to political institutions than those operating in manufacturing or services. These results suggest that firm- and sector-specific factors deserve greater consideration than they have been given in the existing literature.

Suggested Citation

  • Colin M. Barry, 2016. "Bringing the Company Back In: A Firm-Level Analysis of Foreign Direct Investment," International Interactions, Taylor & Francis Journals, vol. 42(2), pages 244-270, March.
    • Handle: RePEc:taf:ginixx:v:42:y:2016:i:2:p:244-270
    DOI: 10.1080/03050629.2015.1065698
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    References listed on IDEAS

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    1. Bhagwati, Jagdish, 2007. "In Defense of Globalization: With a New Afterword," OUP Catalogue, Oxford University Press, number 9780195330939, Decembrie.
    2. Nunnenkamp, Peter, 2002. "Determinants of FDI in developing countries: has globalization changed the rules of the game?," Kiel Working Papers 1122, Kiel Institute for the World Economy (IfW Kiel).
    3. Singh, Harinder & Kwang W. Jun, 1995. "Some new evidence on determinants of foreign direct investment in developing countries," Policy Research Working Paper Series 1531, The World Bank.
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    Cited by:

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    2. Bailey, Nicholas & Warby, Brian, 2019. "Explaining the competition for FDI: Evidence from Costa Rica and cross-national industry-level FDI data," Research in International Business and Finance, Elsevier, vol. 47(C), pages 67-77.

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