Political Risk and Foreign Direct Investment

Session Submission Type: Full Paper Panel

Session Description

This panel seeks to understand how multinational corporations (MNCs) are navigating uncertainties and volatilities in today’s increasingly polarized and hostile global business climate. Multiple recent global shock events – the unfolding strategic competition between China and the US, the COVID-19 pandemic, and the Russian invasion of Ukraine – have collectively heightened political risk to an unprecedented level and the five papers on the panel evaluate how these geopolitical challenges have shaped investment decisions by MNCs.

Davis et al. study why MNCs voluntarily withdrew from Russia, even when policymakers were still debating the extent of sanctions using a survey experiment on Japanese firm managers conducted within the first few months of the Russian invasion of Ukraine. Raynor examines under which conditions MNCs are likely to invest in previously-sanctioned economies using an experimental survey of risk and compliance professionals within the financial services sector. Kim and Zeng leverage firm-level data to examine the impact of the U.S.-China trade war on the greenfield investment of Chinese investors and show that Chinese firms have been shifting their investment to countries with good political ties with Beijing. Zhang et al.’s paper studies whether the Japanese government’s subsidy scheme to incentivize Japanese companies to move production out of China has been successful using a weighted sample of 500 Japanese firms from the universe of 15,114 registered Japanese firms in China. Lastly, Lee and Lee’s paper use original data on 336 concluded investor-state disputes triggered by host regulatory actions to understand why MNCs may be more likely to invest when right-wing governments are in power. Collectively, the five papers on the panel provide important insights into the firm behaviors and strategies in the present global economy with escalating international and internal political tensions.

Sub Unit

• Division 16: International Political Economy

Chair

• Rachel Wellhausen University of Texas at Austin

Discussants

• Rachel Wellhausen University of Texas at Austin

• Benjamin A.T. Graham University of Southern California

Individual Presentations

• Peers and Competitors: How Business Managers Evaluate Withdrawals from Russia - Christina Davis, Harvard University; Jialu Li, Harvard University; Sayumi Miyano, Osaka University

• Perceptions of Risk and Foreign Direct Investment in Post-sanction Economies - Benjamin Raynor, University of California, Irvine

• Chinese Firms in the Trade War: Decoupling through Reshoring? - Soo Yeon Kim, University of British Columbia; Ka Zeng, University of Massachusetts Amherst

• Determinants of Decoupling and Friend-Shoring of Japanese MNCs in China - Jiakun Zhang, University of Kansas; Timothy Cichanowicz, University of Kansas; Samantha Vortherms, University of California, Irvine

• Why Settle?: Partisan-Based Explanation of Investor-State Dispute Outcomes - Haillie Na-Kyung Lee, Seoul National University; Jong Hyun Lee