Making and maintaining corporate empires: the political economy of FDI, appended

A common assumption in political economy theories of foreign direct investment (FDI) is that capital mobility declines once the multinational corporation (MNC) commits resources to a host site. It follows that the logic governing firm behavior changes after entry – a dynamic that has been too often neglected in the existing literature. I address the matter here, presenting a two-phase theory of FDI. During the ‘partnership initiation’ phase, firm decision-making follows an anticipatory logic; but this switches to an adaptive logic during the ‘partnership maintenance’ phase. I consider how this affects firms’ responsiveness to the host’s macro-political and economic environment, deriving distinct hypotheses that reflect the theorized change in FDI decision-making from one phase to the next. I test these hypotheses against data on FDI positions for more than 20,000 MNCs between 1994 and 2018. The evidence is consistent with the argument. As FDI research moves forward, we need to think not only about firm preferences, but also about firm behavior and how it changes with context.