The Politics of Multinational Firms, Governments, and Global Production Networks - Abstracts


Panel 1 - International Regulatory Politics

In Song Kim, Helen Milner, Thomas Bernauer, Gabriele Spilker, Iain Osgood, and Dustin Tingley Firms' Preferences over Multidimensional Trade Policies: Global Production Chains, Investment Protection and Dispute Settlement Mechanisms”

In addition to the conventional focus on market access, recent trade agreements have included provisions related to other aspects of trade, such as investment protection, dispute settlement mechanisms, and escape clauses that enhance flexibility. We argue that preferences over these increasingly salient dimensions of trade policy will vary by firm, not by industry, and that a firm's preferences will depend on its position within global production networks.  To estimate preferences over multiple policy dimensions, we use a conjoint experiment on firms in Costa Rica, a middle-income democracy in the developing world. We find that investment protection is the most salient trade policy dimension for firms who are most deeply integrated into global production networks. In addition, strong dispute settlement procedures are most valued by exporters who are not central to global supply networks. Furthermore, we find far fewer differences across industries than among firms, thus challenging the conventional focus on inter-industry distinctions in the trade policy literature.

Sophie Meunier “Integration by Stealth: How the European Union Gained Competence over Foreign Direct Investment”

How are policy competences allocated between different actors? This paper contributes to the literature on institutional development through an in-depth case-study of the conditions under which the competence over the negotiation of agreements on foreign direct investment (FDI) was transferred from the national level to the European Union (EU) in the 2009 Lisbon Treaty. Most analysts assume that this competence shift was a rationally designed delegation, intended to maximize European bargaining power in international investment negotiations and conceived as an important element of a teleological drive to make the EU a meaningful external actor. This paper tells a different story--one where the competence shift happened by stealth as a result of a combination of neo-functionalist Commission entrepreneurship and historical accident, against the preferences of the Member States. The paper also assesses whether the conditions under which the competence was transferred have implications on the implementation of the new policy.

Emma Aisbett and Lauge Poulsen “Are Aliens Mistreated?: The Relative Treatment of Foreign Firms in Developing Countries​”

It is often assumed that the political risks faced by foreign firms are greater than those faced by domestic firms because the former is politically disenfranchised. On the other hand, most lower income countries employ a wide array of policies to attract foreign investors. This begs the question of whether such policies are an attempt to compensate for systematic relative mistreatment of foreign firms, or rather an example of systematic preferential treatment of them. We examine the relative treatment of foreign firms using data from extensive World Bank surveys of firms’ experiences in middle and low income countries. Our results - across a range of measures - suggest that foreign firms are typically treated as well or better by host governments than comparable domestic investors.

Susan Archury, Rodrigo Nunez-Donoso, and Pablo Pinto Unpacking the effects of governance on the activities of MNCs: Evidence from U.S. imports” 

Multinational corporations are the dominant actors in international trade; their production strategies involve a complex set of activities in multiple locations around the world. Democratic governance affects MNCs' investment and procurement strategies. Yet democracy is a multi-dimensional phenomenon; how we measure democracy influences the direction and intensity of these effects. Different attributes of democratic governance have differential effects on investment and contractual risk. Enlarging the franchise, for instance, motivates elected officials to cater to broader interests, but could reduce incentives to save and invest. Protection of property rights, on the other hand, promotes investment, but also renders arms' length transactions more secure, making investing abroad less cost effective. Hence, to assess the impact of political institutions on the sourcing strategies of MNCs we need to simultaneously look at how those institutions affect firms' incentives to trade with related parties or at arms' length. We also argue that when assessing potential holdup problems associated with their sourcing strategies, firms place higher weight on institutional features affecting the enforceability of contracts. Using U.S. Census data we evaluate the effect of democratic governance on both the presence of US MNC affiliates abroad and the share of related party to total trade. We rely on indices of democratic governance from different sources, which allow us to isolate the two main institutional features affecting investment and contractual risks: liberal democratic practices, and the strength and independence of the judiciary. Aggregate measures of democratic governance conflate these effects. We find that democratic governance is positively correlated with MNC presence, but negatively correlated with the extent to which MNCs procure from its affiliates. We provide evidence that this effect is driven by contract enforcement and judicial independence, and is stronger for less contract-intensive activities. Institutional crises affecting the judiciary, on the other hand, have a stronger impact on related party trade, particularly in sectors with contract-intensive activities.

Panel 2 - MNCs and Domestic Politics

Erica Owen “Foreign Direct Investment and Elections: The impact of greenfield FDI on incumbent reelection in Brazil”

Governments actively court foreign direct investment as a tool for development because the entrance of a multinational firm can provide a substantial boost for the local economy, including through the creation of jobs. Yet we do not know whether voters reward incumbent parties for attracting these investment projects, as the economic voting literature is largely silent on whether voters hold elected officials accountable for welfare outcomes associated with globalization. Given the benefits of inward investment for voters, I argue that new investment will increase the electoral success of the incumbent party. I use project-level investment data to test this hypothesis in the context of Brazilian mayoral elections between 2004 and 2012. I find that the announcement of a new investment project has a robust and substantively large effect on the electoral performance on the party of the incumbent mayor, suggesting a role for globalization to directly influence domestic elections. 

Xander Slaski “Multinational Oil Firms and Host Country Bargaining Power in Latin America”

This paper analyzes negotiations between multinational corporations and host states in Latin America in order to determine when states capture a greater share of the rents from oil production. I use data on 4,875 oil contracts between Latin American countries and international oil firms from 2003 to 2014 from the oil and gas consulting firm Wood Mackenzie. I operationalize host country bargaining power by looking at the state share of profits from oil extraction. I develop and then test a formal bargaining model based on sources of bargaining power that others have cited in the existing literature: the technical expertise of the national oil company, the state’s investment climate, and institutional factors like corruption. The empirical model shows that increased corruption leads to a significantly lower state percent of profits from resource rents, pointing to the central role of institutions in determining the degree to which states benefit from foreign investment in the resource sector.

Surprisingly, more jobs or capital investment does not always lead to improved assessment of government performance. Investment and jobs creation in particular sectors, especially the extractive industries, can lead to worse perceptions of government performance.

The effects are also mediated by economic characteristics of the host country, as well as by individual-level characteristics. The results demonstrate that factors outside of the country have a considerable impact on how the government is perceived, and that foreign investment can, depending on the type of investment and conditions under which it is made, substantially shift public opinion about government performance.

Stephen Weymouth “Service Firms in the Politics of U.S. Trade Policy”

Despite the importance of services in international trade and in the support of global production activities, studies of the political economy of trade liberalization tend to focus on goods trade and the preferences of manufacturing firms and their employees. This paper argues for greater consideration of services firms and services trade in political economy models of trade policy. The argument is built around a number of stylized facts about U.S. trade in services. The data suggest that the U.S. maintains a comparative advantage in services trade, which for standard accounts of trade politics would suggest more homogenous support for trade liberalization within the services sector compared to manufacturing. However, the politics of services liberalization are complicated by the distinct and complex features of international trade in services. Tradable services are delivered internationally through cross-border trade (often electronically), but also through temporary travel, and most importantly for U.S. firms, by commercial presence (i.e., FDI). These features of services trade imply that governments have an array of policy tools at their disposal to protect domestic firms from foreign competition. This paper documents the relative importance of various modes of U.S. trade in services, assesses the relationship between service restrictions and trade flows, and discusses how growth in services trade may impact firms' trade policy objectives.

Ida Bastiaens, Noel P. Johnston, Faisal Ahmed “The Fallacy of Composition”

Researchers across the natural and social sciences often contend with inference across levels of analysis: that theoretical predictions at the individual level may not explain behavior at the aggregate level, and vice versa. As with other fields, political scientists have yet to fully problematize and model this fallacy across units of analysis. In this article, we provide a theoretical framework and empirical evidence of this fallacy across multiple areas of public policy, including international trade, foreign investment, foreign aid, welfare programs, and Internet use. Using survey data from the PEW Global Attitudes Project, we show that preferences for some resources will be “consistent” between and within countries (e.g., rich individuals and rich countries have the same preferences towards the same good or policy), while for other resources preferences will not align as such. Our theory seeks to clarify when a levels fallacy will manifest, and when inferences across levels will be less problematic.

Panel 3 - Expropriation Risk and Nationalization

Rachel Wellhausen and Leslie Johns “The Distributional Effects of Economic Globalization on Political Risk”

New-new trade theory demonstrates that economic globalization has distributional effects on firms as traders, and we use those insights to explain distributional effects on firms acting as direct investors. Canonically, political risk is distributed across foreign firms as a function of ex post asset immobility. In contrast, we focus on industry-specific start-up costs as a key source of variation in political risk. In short, since the host government can only take from foreign firms that actually produce in its market, it must lower its takings from firms in industries with higher start-up costs, or else it will drive all foreign firms from the market. This constraint has implications for the presence and productivity of foreign and domestic firms in a given market. It is also consistent with modern forms of government takings via creeping expropriation, which affect not only oil and gas firms but also firms in manufacturing and service industries. This article currently develops a formal argument and presents suggestive empirical data. 

Noel Johnston “How Taking from Foreigners Affects Domestic Human Rights”

David Hume and the founders of the market economy argued that it is critical for a government to protect the property rights of its citizens. It is unclear, however, if this applies to foreign-owned property as well. By international law, an expropriation can only be legal if undergone for a public purpose. Government leaders often attest this is the case. But in reality, does seizing assets of foreigners typically benefit the public? We argue that it does not. This project brings together two literatures in political science, and is the first to statistically analyze the consequences of international expropriations for domestic political and physical rights. Using case studies and a variety of statistical tests, we argue that, while expropriations create short-term windfall profits for a government, they may do overall damage to the public good by chasing away welfare-enhancing investors and creating revenue for government repression.

Joseph Wright and Boliang Zhu "Monopoly Rents and Foreign Investment in Fixed Assets"

This article advances the literature on political institutions and foreign direct investment (FDI) by differentiating both foreign investors and authoritarian regimes. We argue that firms' fixed asset intensity shapes their preferences for institutional environments. High fixed asset intensity acts as entry barriers, resulting in concentrated market structures and high firms' incentives for monopoly rent extraction. In this sense, personalist regimes are attractive to fixed asset investors because of the lack of de facto institutional constraints and leaders' families' control of key economic sectors. Conversely, mobile asset investors face a competitive market and few opportunities for monopoly rent extraction due to low entry barriers, but they can still threaten to exit. Therefore, they tend to favor dominant-party regimes that credibly commit to ex ant policy arrangements and meanwhile suppress populist demands. To examine our argument empirically, we first provide evidence that personalist regimes are associated with higher market concentration, lower transparency and accountability, and more corruption prosecutions in the primary sector. Then we proxy fixed asset intensity by sector of investment---primary vs secondary. The empirical results based on developing countries from 1980 to 2008 indicate that, compared to democracies, personalist regimes have a higher ratio of primary FDI to GDP, while dominant-party regimes attract more secondary FDI, which provides strong support to our central argument. Our study highlights the importance of accounting for differences among investors as well as variation in political regimes to understand how politics influences FDI.

Jennifer Tobin “A Bit of Regulatory Chill: Assessing the Effect of BITs on the Enactment of Environmental Regulation”

Nearly every country has signed onto at least one of the almost 3,000 bilateral investment treaties (BIT) in force around the globe. By virtue of their pervasiveness, BITs have far reaching implications for states’ regulatory freedom. As environmental concerns have risen to prominence over the past half-century, the importance of the nation-state’s role in addressing environmental issues has been recognized. Success in correcting environmental problems globally and locally, therefore, will be determined in large part by individual countries' willingness and ability to exercise sovereign regulatory authority in pursuit of environmental protection.

A number of developing country governments along with environmental and legal NGOs have recently begun to argue that findings in favor of firms (and against governments) in BIT disputes effectively hold the health and environmental concerns of the people who live on the land to be inferior to the investment rights of an international corporation and that inadequate consideration is being paid to a country’s sovereign right to enact regulations in the public interest. This manuscript analyzes whether this is in fact the case. In other words, we examine whether BITs have an effect on the enactment of environmental regulations in developing countries and emerging markets. Using newly available time-series data for the Environmental Performance Index (EPI)—an annual, country-level measure of environmental policy performance—this manuscript augments existing literature by empirically investigating the “regulatory chill” hypothesis that has been primarily advanced through legal and case study analysis.

Roundtable Discussion - Revisiting The “Democratic Advantages” of Foreign Direct Investment : Where Do Multinational Corporations Operate?

Ben Graham and Christopher J. Fariss “The Political Determinants of FDI Flows: New Modelling Approaches”

Since 1980, trade has increased 6-fold, while foreign direct investment (FDI) has increased 20-fold. Unfortunately, the literature examining the political determinants of FDI is crippled by widely acknowledged difficulties in estimating the necessary regression equations.  In particular, balance-of-payments (BOP) data on FDI flows are characterized by substantial missing values, a substantial number of zero and negative values, and over dispersion – characteristics that confound traditional estimation approaches such as linear regression with a log-transformed dependent variable.  This paper revisits prior empirical findings with two new estimation strategies. First, we apply a machine-learning algorithm called random-forests to estimate the effect of institutional variables on raw FDI inflows. Random forest models are capable of detecting higher order conditional relationships between variables (interaction effects) and nonlinearities between dependent and independent variables without presupposing a parametric form that links these variables. Moreover, these models have low generalization error and, using cross-validation, will not overfit the data. Second, we adopt a latent-variable approach and treat the desirability of the host country for inward FDI as the (unobserved) dependent variable. We then treat FDI inflows as one observable indicators of this latent desirability, (various measures of the institutional environment, such as executive constraints, are other observable indicators), and we conduct a Bayesian estimation of which institutional variables are the best predictors of the desirability of the investment climate. By combining and contrasting the results of these two approaches, we can both identify valid statistical relationships between political institutions and FDI flows and build toward a new set of best practices for working with FDI as a dependent variable. 

Quan Li, Erica Owen and Austin Mitchell “Do Democracies Attract More Foreign Direct Investment? A Meta-Regression Analysis”

A large body of literature in political economy seeks to study whether democracies attract more foreign direct investment than non-democracies.  The question has important practical and policy implications. Obviously, definitive answers could affect the decisions of businesses to invest in foreign countries and many national governments which actively compete for FDI.  Scholars, however, have offered competing arguments over the effect of regime type on FDI.  Empirical evidence has been rather mixed.  Moreover, studies often differ with respect to measures of FDI, samples, model specifications, and methods.  The state of affairs in the empirical literature make it difficult for scholars to reach consensus and achieve cumulative knowledge over this research question.  In this paper, we use a novel strategy to address this challenge.  We apply meta-regression analysis to over 200 estimates from some 37 empirical studies to estimate the weighted average effect of democracy, test the possibility of publication bias, and identify the sources of conflicting findings.  Our research provides a comprehensive, systematic evaluation of accumulated evidence on the effect of democracy on FDI.  It also has implications for the type of theoretical work needed that can advance our understanding of this debated issue.

Eddy Malesky “Pandering Upward: Tax Incentives and Credit Claiming in Authoritarian Countries”

Both countries and subnational governments commonly engage in competition for mobile capital, offering generous incentives to attract investment. Previous work has suggested that the competition for capital can be politically beneficial to incumbent politicians in democratic societies. Building off theories of electoral pandering, this work argues that such incentives allow politicians in democracies to take credit for firms’ investment decisions or escape blame if firms do not come.  For these reasons, empirical work has found that politicians facing greater electoral competition are more likely to offer tax incentives to investors. Critically, however, all of the credit claiming analysis has been performed in democratic countries. An important anomaly for the pandering story is the strong empirical finding that authoritarian countries offer greater tax incentives to foreign investors than their democratic counterparts, both in terms of variety and size of the reductions. In this piece, we explore the reasons for this puzzle.  Using cross-national data, as well as firm-level data from Russia and Vietnam, we demonstrate that the authoritarian anomaly is conditioned by whether the authoritarian country has strong mechanisms of meritocratic promotion for subnational leaders.  In these countries, the upward accountability generated by the promotion mechanism substitutes for the downward accountability to voters.  In other words, the higher tax incentives observed in authoritarian countries is resulting from the pandering upward of subnational leaders to their central benefactors.

Faisal Ahmed "The Perils of International Capital"

Conventional wisdom portends that international capital flows should engender political liberalization. Such sentiment, however, discounts the ability of autocrats to act strategically so as to leverage international capital flows to their political advantage. This paper presents a theory and corroborative empirics unifying three distinct forms of international capital flows (foreign aid, remittances, and foreign direct investment) to the political stability of authoritarian regimes. International capital does so by augmenting an autocrat's public finances via 3 distinct mechanisms. In the model's equilibrium, more autocratic-leaning governments can harness international capital flows to fund repression, elite-patronage, and to cultivate performance legitimacy. These predictions are examined cross-nationally and in 3 case studies.

B. Peter Rosendorff, James Hollyer, and Eric Arias "Cooperative Autocracies: Leader Survival, Creditworthiness and Bilateral Investment Treaties"

The accumulation of capital is essential for economic development, but investors face risk when committing their capital to productive use. Bilateral Investment Treaties (BITs) help developing country leaders commit to limit their takings. Democratic states with functional domestic courts, strong reputations and transparency in policymaking all make commitments to protect foreign investment more credible. Autocratic countries, where the domestic rule of law, or the independence of the courts cannot be relied upon suer from a weak reputation for protection of foreign investment. It is these countries and leaders that have the most to gain from signing BITs. Survival models show that BITs enhance leader survival by more in autocracies relative to democracies, and that institutionalized autocratic leaders have less to gain in terms of survival from BITs signing than do personalistic dictators. Using credit-worthiness scores and event-studies, we also show that BIT signing improves leader survival via improving the domestic investment climate.

Panel 4 - Regulating Social Outcomes

Sonal Pandya and Sheetal Sekhri “FDI and the Status of Women in India”

Foreign direct investment (FDI), the entry of multinational firms to produce goods and services, can be a powerful catalyst for economic growth by introducing new jobs and sophisticated technologies. Although developing countries devote considerable resources to attracting FDI, we know little about FDI’s broader social consequences.  Our project examines FDI’s effects on the status of women in India. In 2006 Indian FDI inflows nearly tripled over the previous year. We exploit this sudden shift to assess FDI’s effects on several aspects of women’s status including wages, health, autonomy, crimes, girls’ schooling, and political participation. In a pilot study we find Indian districts that received more FDI in this period experienced a 12 percent decline in reported rapes. This finding is robust to a wide range of controls. We also find no association between FDI and crimes like robbery and homicide. Our micro-level analysis will allow us to disentangle precise causal mechanisms including FDI’s labor market effects and infrastructure improvements related to FDI. Our analysis will measure annual FDI flows by district and industry using establishment-level data for a representative sample of foreign-owned firms.

Adam Chilton and Galit Sarfaty “The Limitations of Supply Chain Disclosure Regimes”

The past few decades have seen numerous cases of human rights violations within corporate supply chains. In response, governments have begun to pass mandatory disclosure laws that require companies to release detailed information on their supply chains in the hopes that these laws will create pressure that improves corporate accountability. In this paper, we argue that supply chain disclosure regimes are unlikely to have a large effect on consumer behavior, and as a result, their effectiveness at reducing human rights abuses will likely be limited. In order to test our argument, we conducted a series of experiments designed to examine how well consumers understand supply chain disclosures. In the experiments, the respondents consistently rated disclosures reporting low levels of due diligence almost as highly as disclosures reporting high levels of due diligence. Based on these results, we conclude that consumer-oriented supply chain disclosure regimes should be reconsidered. 

Theodore Moran “FDI and Supply Chains in Middle-Skilled Manufacturing in Emerging Markets: Unusual Dynamics of Race-to-the-Top in Regulatory Policy”

For any reasonable analysis of the impact of foreign direct on emerging market economies, FDI flows must be divided into at least five separate industry segments, each with distinctive policy and regulatory challenges.  These include foreign investment in extractive industries, foreign investment in lowest-skill, lowest-wage manufacturing industries (“sweatshop industries”), foreign investment in middle-skill, middle-wage manufacturing industries, foreign investment in infrastructure, and the understudied field of foreign investment in service industries.

Each form of FDI presents such particular kinds of policy challenges for developing-country host authorities, and generates such diverse impacts on the developing host economy, as to undermine the usefulness of any assessment that does not disaggregate the FDI flows.  For example, does FDI in the extractive sector generate substantial government revenues that are managed in a fiscally sound manner (no “Dutch disease”) with reasonable transparency and lack of corruption (no “resource curse”)?   Does FDI in infrastructure provide reliable electricity, water, and other services to businesses and households with appropriate sharing of foreign exchange risk and demand-fluctuation risk?  Third, does FDI in lowest-skill manufacturing subject workers to dangerous health and safety standards, or not, while decreasing or increasing their economic and social agency? Fourth, does FDI in middle- and higher-skill efficiency-seeking manufacturing upgrade and diversify the host production and export base, while generating backward linkages and vertical spillovers?  And fifth, does FDI in services crowd “in” or crowd “out” indigenous investment in services, and which outcome is more beneficial for host-country development?

Notwithstanding the need for stand-alone lines of investigation, papers commonly referred to as “benchmark studies” of the impact of FDI on the host economy run regressions using aggregated data that combine all five categories for FDI flows and stocks, as do many less prominent publications. But using aggregations of all five types of FDI leads to inaccurate assessments and policy recommendations. The casualty list is long (for a summary list of well-respected and oft-cited authors, with inaccurate empirical conclusions and mistaken policy conclusions, see Moran, 2011).   In short, studies whose methodology is to perform regressions using aggregate FDI flows or FDI stocks and variables of host economic growth or welfare or employment are simply misguided.

Within this caveat in mind, this paper examines foreign direct investment specifically in middle-skill, middle-wage manufacturing activities, focusing on the potential of developing countries to use this kind of FDI bring about the structural transformation of the host economy.

The analysis shows that the effort to use FDI to upgrade and diversify the export profile of host developing countries leads to a race-to-the-top in launching host country regulatory reforms, raising host country doing-business indicators, creating public-private partnerships for vocational training, and improving physical and IT infrastructure.

The analysis of these case studies contributes to another key debate about what regulatory structure is needed for development; namely, whether emerging market countries require an industrial policy to accomplish structural transformation.  The evidence shows that a light-form industrial policy is needed to induce multinational investors to link host production of goods and services into their global supply networks. These case studies demonstrate, however, that emerging market countries can achieve structural transformation of their economies without substantial levels of protection or large amounts of direct subsidy to foreign or domestic investors.

Nita Rudra and Sera Linardi “Foreign Direct Investment and Willingness to Support the Poor in Developing Countries: Experiment in India”

How does globalization impact attitudes about the poor in developing countries? We propose the hypothesis that in developing countries, the ‘glitter’ of foreign direct investment (FDI) reduces support for income redistribution by creating perceptions of better economic conditions for the poor. A framed field experiment in India reveals foreign ownership of low-skilled firms – but not high-skilled ones- reduces respondents willingness to engage in redistribution. We further find that rich conservatives drive this reduction. Initial evidence from the World Value Survey suggests generalizability of our findings. This analysis provides the first experimental evidence of the causal impact of globalization on redistribution in developing economies, mediated by ideology and income.

Roundtable Discussion - Frontiers of Research on Multinational Firms

Sarah Bauerle Danzman and Xander Slaski “Compensation, Agglomeration, or Competition? Evaluating the Correlates of Investment Incentives”

An enduring question in the field of international political economy is the extent to which governments retain the capacity to tax and regulate globally mobile firms. Putatively, multi- national firms have increasingly credible exit options, which strengthen their bargaining leverage vis-a-vis governments that wish to attract and keep investment. We investigate the factors that may alter the bargaining strength of firms and governments and thus the extent to which states must offer generous incentives packages to attract foreign investors. Using deal-level financial incentive data, we explore the systematic covariates of state- and firm-level attributes that explain variations in incentive size. We first run an initial test comparing incentives across countries in Latin America. We then compare subnational dif- ferences in deals at the level of the federal state in Brazil. We find little support for the most prominent explanation of incentives, compensation, but more support for competition- driven explanations of incentives. However, our strongest findings suggest investor mobility and employment generation potential have little predictive power over investment incentive size. It seems the political logic of incentives diverges widely from popular explanations of government-firm relations. Specifically, we find that incentives seem to reinforce inequality between investment locations, rather than allowing disadvantaged locations to catch up or compete.

Jun Fu “Rationality, What Rationality? Institutional Homoeconomicus: Initial Evidence from FDI in China”

The explanatory power of social science theories is predicated on correct understanding of human nature. At the axiomatic level there have been constant tugs of war between two extreme models of human nature, ie. "homo economicus" and "homo sociologicus". While "bounded rationality" provides a midway, it remains problematic for falsification requirement of scientific research paradigm as it does not define a priori boundary parameters, and as such its explanation is only ex post. This paper proposes an axiomatic concept of "institutional homo economicus", ie., human beings are rational only to the extent that their rationality is a function of current institutional environment. As institutions evolve, and are susceptible to analysis (ie more than eg culture), theoretical framework built on this axiomatic re-calibration gains both in terms of explanatory power as well as rigor of falsification requirement. Hypotheses thus generated are then systematically subjected to empirical testing with FDI data over a period of 15 years in China, and results demonstrate that institutions have had a systematic impact on the rationality of investment behavior in terms of both modality and location choices. Theoretically the research indicates that micro-foundation with the axiomatic principle of "institutional homo economicus" offers a better alternative for unifying theories across social science disciplines from economics, political science, to sociology. 

Eddy Malesky and Layna MosleyChains of Love? Supply Chains Relationships and the Diffusion of Labor Standards

The nature of global production is evolving, with much of the world’s output produced not in facilities directly owned by hierarchically-structured multinational corporations, but by firms of various sizes and ownership structures participating in arm’s length transactional relationships with lead global firms.  Suppliers based in one country may make direct investments in another country, and sell their output to a lead firm based in a third location. This pattern may occur multiple times, and at various stages of production, in a single supply chain. While a relatively small percentage of the world’s workers are employed by multinational corporations and their directly-owned affiliates, approximately one-fifth of the world’s workers are employed in global supply chains. Yet scholarship in international political economy has thus far paid little attention to firms in intermediate supply chain positions. We therefore seek to understand how developing country firms at low and intermediate positions in global supply chains interact with, and are influenced by, their partners abroad.

Specifically, we explore the conditions under which the diffusion and upgrading of labor standards exist for developing-country firms that occupy low or intermediate nodes in their production chains. We hypothesize that participation in global supply chains offers two mechanisms for the upgrading of labor standards – one that is based on producing higher value-added goods for more mature markets, and a second that relies on demands for “ethical consumption” from lead firms and consumers based in wealthy economies. While some work has identified the trade-based diffusion of worker rights, it has been silent on which of these channels of upgrading is at work. Using data from a survey of foreign-owned firms in Vietnam, many of which are global supply chain participants, we collect information on the willingness of firms to invest in labor-related upgrading. We find that, in exchange for a significant possibility of winning a new contract for supply chain participation, firms are willing to invest substantial resources in upgrading. Next, our survey experiment design allows us to assess the extent to which this willingness varies as a function of market location (Europe versus India), as well as with the markup available in a given product category.

Srividya JandhyalaInternational Organizations and Political Risk – The case of multilateral development banks in infrastructure projects

The world polity literature has long emphasized that International Organizations (IOs) influence the behavior of States through multilateral coercive and legitimation pressures. In contrast, we argue that IOs can create an alternate system of governance by partnering with firms. In the context of private investment in infrastructure projects, we examine how Multilateral Development Banks (MDBs) partner with firms to lower the likelihood of project distress caused by ex-post re-contracting between States and firms. We argue that MDBs provide operational assistance to projects which ensure greater upfront review and development, more balanced allocation of risks between investors and States, and increased oversight in implementation. MDBs also provide political assistance by leveraging their influence to resolve disputes that arise between firms and host governments during the course of an infrastructure project. We expect the effect of MDBs to be stronger in countries with weak institutional development and where MDBs have greater leverage. Support for these hypotheses is presented using a sample of 2117 infrastructure projects with private investment initiated in 45 developing countries from 1995 to 2009.

Tim Buthe and Shahryar Minhas The Global Diffusion of Competition Laws: A Spatial Analysis of the International Spread of Competition Laws as a Policy Against Transnational Anti-Competitive Collusion

Competition law seeks to prevent anti-competitive behavior and more generally the accumulation and abuse of market power. A deliberately pro-market policy, it is nonetheless inherently political and often controversial in that it entails the use of state power to constrain and possibly redistribute private economic power. Until twenty-five years ago, it was almost entirely the domain of advanced capitalist democracies with strong rule-of-law traditions and well-established, largely meritocratic public bureaucracies. Since then, the number of jurisdictions with antitrust laws has grown rapidly, from some thirty to a much more diverse group of more than 130 countries today. Most of the existing literature on this strikingly rapid diffusion has focused on the domestic conditions that are conducive to the adoption of such laws, such as political and economic liberalization. Even the few papers that consider factors such as international trade or World Bank advocacy of antitrust law adoption, model the enactment of antitrust laws as an independent decision for each country. We argue that such models fail to capture causally important aspects of the way in which antitrust has diffused through the international political-economic system due to interdependencies in state decision-making. We emphasize, in particular, the institutionalization of economic openness through networks of preferential trade agreements (PTAs) as a possible conduit for diffusion. To analyze diffusion empirically, we use an original dataset of competition law adoption over more than half a century. This allows us to assess various mechanisms through which antitrust laws diffuse across borders using an event history framework with spatial lags.