Strategic Multinationals and Domestic Politics

Session Submission Type: In-Person Full Paper Panel

Session Description

Multinational corporations (MNCs) and foreign direct investment (FDI) are a key aspect of globalization and have been central topics in the scholarship of international political economy. In the past two decades, scholars have devoted much attention to understanding the determinants of FDI inflows. Yet, the consequences of inward FDI and multinational activity are relatively under-explored. Our knowledge about micro-level firm-government interactions is even more limited. This panel seeks to advance the literature by exploring two critical political aspects of multinational activity: 1) the political consequences of foreign investment and multinational production, and 2) the strategies utilized by MNCs to mitigate political risks. These four papers together shed new light on the welfare implications of globalization.

Following a prominent line of research, Pinto, Zhu, and Gulotty examine how multinational corporations' activities shape foreign, domestic, and international politics. Pinto and Zhu’s article examines the consequences of inward FDI on political (in)stability in host countries. They argue whether FDI inflows lead to political contestation and instability in developing countries depends on how the entry of multinational firms changes market dynamics: foreign investment results in political contestation and instability when inward FDI increases market concentration and rent creation. Gulotty’s paper, on the other hand, shows how multi-site production in the U.S. leads to the collapse of multilateral efforts to address agricultural protectionism. Using novel historical data, he demonstrates how multi-plant production activities in the U.S. help build the first systemic export subsidy program in the U.S. that subsequently invites retaliation and a cycle of protectionism around the world.

The other two papers by Ge and Jamison embrace a more firm-centric view and investigate how multinational corporations strategically interact with home and host governments. Ge’s paper challenges the canonical theory on asset mobility. He proposes a theory that explains why and when low asset mobility helps foreign firms to get better government treatment. Host governments only grant preferential treatment to firms that can credibly commit to staying after receiving these policies. Less mobile firms’ commitments to stay are always more credible than those of more mobile firms. Hence, immobile firms are more likely to receive preferential policies. Jamison's work explores specific mechanisms whereby home governments can shield their multinational corporations from political risks in other countries. Using a new dyadic project-level FDI database, she finds that firms backed by state banks that can absorb corporate debt are more likely to tolerate a high level of political risks in host countries.

These four papers utilize very different research frameworks to advance our knowledge of multinational corporations. While Ge’s and Gulotty’s papers delve deeper into the micro-foundation of macro-level phenomena by studying one specific country and time, Jamison’s and Pinto and Zhu’s works situate their theories in a broader geographic and temporal context. Thus, this panel provides a valuable forum to integrate and synthesize findings from different research approaches.

Sub Unit

• Division 16: International Political Economy

Individual Presentations

• Curses or Blessings: How Low Asset Mobility Helps Firms Gain Government Support - Haosen Ge, Princeton University

• The Multinational Origins of the National Market - Robert Gulotty, The University of Chicago

• Investing with Mitigated Fear of Failure: Firm Nationality & Political Risk - Anne Jamison, Princeton University

• Foreign Direct Investment, Political Contestation, and Government (In)Stability - Pablo Martin Pinto, University Houston; Boliang Zhu, Pennsylvania State University

Chair

• Edmund J. Malesky Duke University

Discussant

• Rachel Wellhausen University of Texas at Austin