Transnational Corporations - Volume 28, Issue 3, 2021

Why does aggregate foreign direct investment (FDI) fall with distance? We conjecture that high trade costs adversely affect FDI entry decisions in a dynamic setting, even when controlling for previous export experience in foreign markets. We test this hypothesis using Japanese firm-level data for the period of 1995–2018, and find that the probability of FDI entry decreases with distance. We conclude that trade costs limit a firm’s ability to assess foreign market uncertainty. As a result, a firm may exit a foreign market before realizing the potential profitability and never establish an affiliate there. This result is highly relevant for policymakers, as it proves that trade liberalization and FDI facilitation policies may reinforce each other, resulting in a compound effect for both exports and FDI.

As the green bond market continues to develop and assume a critical role as a post-pandemic vehicle for supporting a balanced economic rebuild and credible transition efforts, policymakers must reassess the current disclosure regime. This paper derives findings from Bayesian games to demonstrate that the prevailing labelling regime for green bonds is susceptible to the adverse selection problem; due to informational asymmetries, allocative inefficiencies arising from capital misallocation to inherently “non-green” bonds may ensue. To prevent the erosion of confidence in the market segment and support the potential of impact finance instruments to affect positive social and environmental change, this paper draws on established game theory frameworks to inform recommendations for policyled solutions to uphold the market’s credibility. These recommendations concern the integration of a regulatory infrastructure, a centralized ongoing audit under an “exogenously costly” regime and the introduction of a clearer course for legal recourse against issuers that mislabel bonds.

Countries attract foreign investors, “entrants”, to invest and venture by employing policy programmes and marketing strategies. Country attractiveness for foreign investors relates to international competitiveness. Instruments building a formal status, such as golden visas and citizenship, are used to attract individual foreign investors and their families. These are often cosmopolitan people, i.e. global citizens but also global diasporans. They contribute to the economy, ideas and transnational entrepreneurial ecosystems. These policy instruments are criticized partly due to missing legitimacy, partly due to concerns about geopolitics and international crime. However, diasporic investors manifest different motivations and commitments, making them particular. This study examines what kind of investor programmes are offered to different foreign migrant investors and whether they address diasporic ties. It presents a country comparison of investor policy pathways towards citizenship. It contributes to the literature on migrant investment and policymaking.

This study draws upon the institution-based view to examine the role of market and non-market institutional strategies of multinational enterprises from emerging markets (EMNEs) in shaping their decisions on outward foreign direct investment (OFDI) (decision to engage in OFDI and volume of investment). The proposed conceptual framework is tested on the OFDI decisions of listed Indian firms during the period 2008–2018. The results of random effects logistic regression and tobit regression provide robust evidence for the positive impact of institutional substitution and institutional signaling strategy on the decision to engage in OFDI as well as the volume of investment. An institutional borrowing strategy affects only the decision to engage in OFDI, whereas an internalization strategy does not help EMNEs while internationalizing. The study contributes to the literature on institutional voids and institutional escapism by identifying the strategies that facilitate overseas expansion. It adds to the EMNE literature, which has focused lately on explaining the role of non-market strategies in internationalization. The results of the study indicate the need for policy initiatives geared towards filling information voids, strengthening legal systems and development of credit markets.

Global value chains (GVCs) are a powerful vehicle through which multinational enterprises (MNEs) can help address the grand challenges that humanity faces. But optimally utilizing GVCs for sustainability requires fundamental changes in corporate behaviour. In this paper we expound the concept of MNE economic power within GVCs and discuss needed changes for MNE business models to fill governance gaps. We debate the renewed role of public governance to promote social and environmental standards along GVCs and outline policies that governments should adopt to help MNEs and lead firms alter their business model.

In the global economy today, there is both a supply-side push of large amounts of stimulus funding being directed at infrastructure investment and a corresponding demand-pull, with nearly all of the countries in the world committing themselves to the Sustainable Development Goals and to the transition to a net zero economy. In the energy sector, the pressure to rapidly increase the proportion of renewable capacity, primarily wind and solar, has created unprecedented opportunities for investment, but it also raises concerns about the availability of project finance investors to execute all of these projects, particularly in developing countries. We discuss three areas of future research that address the causes and remedies for such capacity constraints, namely, the structuring of project finance investment, demonstration effects, and the role of technological complementarities and leapfrogging in developing countries.

In a volatile, uncertain, complex and ambiguous (VUCA) world, responses by governments to global shocks will vary in substance and rate of success. We argue that policymakers can make better decisions when high-quality evidence is incorporated into an evidence-based policymaking (EBP) process. To generate high-quality evidence for analysing shock events, researchers should use event analysis, a methodological approach for exploring research questions such as the timing, frequency and patterns of events and their antecedents and consequences. We discuss four types of research methods used in event analysis and their relative appropriateness for analysing different categories of events. In particular, we argue that one method – the event study – is well suited for analysing crises, i.e. shock events that involve high threat, short decision-making time and surprise. We conclude that understanding and using the tools of event analysis is key to successful EBP in a VUCA world.

International business in the past century has largely been the domain of large multinational enterprises and banks, as well as small exporting and importing companies. The scope of international business activity has grown in recent years, and today there are many State-owned companies involved in international business activities, as well as financial investors rather than only industrial or commercial companies undertaking foreign direct investment (FDI). Government policy toward international business has largely been supportive since the 1990s, while concerns have arisen particularly in regard to the activities of State-owned enterprises and also the activities of non-traditional investors such as investment funds. To achieve the greatest benefits from FDI and trade, governments need to understand which companies are making the key decisions in global value chains and to collaborate in rule-setting and in guiding companies to pursue desirable activities and to limit non-business goal-seeking.

This research note reassesses UNCTAD’s transnationality indices in light of recent economic trends that are quickly changing the international investment landscape: the digital economy, the new industrial revolution and the resulting asset-light international business models. The recent international “Agreement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy” through the Base Erosion Profit Shifting project emphasizes the importance of fully understanding and correctly interpreting the implications of digitalization for investment and development policy. The analysis shows that UNCTAD’s internationalization indices are still able to capture relevant structural changes but could benefit from several fine-tuning options to allow a clearer interpretation and consequently a better elaboration of policy advice. Relevant policy areas include international taxation, as suggested by the analysis of the FDI lightness index, but also employment and more generally development strategies of host economies.

This book is a valuable reference document for the study of the evolution of contemporary socioeconomic life, marked by radical changes in structures, behaviours, methods of production and consumption, and rules of the social game. The current changes are of a “revolutionary” nature and thus make possible the vision of the future, which is necessary to decide on investments (material or immaterial). The uncertain dominates. Optimistic thinkers or actors believe that insofar as nothing is safe, everything is possible. But we still have to understand what is desirable, necessary or possible, because opportunities and risks are linked. The analysis of key success factors that are, or have been, actually operational is therefore of the highest interest.