Rising Multinationals: The Political Economy of South-North Investment Flows
Open AccessDissertation AbstractIn the past two decades, there has been an unprecedented rise in outward investment from developing countries into developed markets. While existing theories predict that multinational activity should flow from capital-rich countries to capital-scarce countries in search of higher rates of return, witnessing movement in the opposite direction presents an interesting puzzle. From a policy perspective, governments who previously restricted outward capital flows have undergone a policy reversal and increasingly embraced internationalized capital flows. What explains the rise of South-North investment flows? What types of policy tools can developing country governments use to encourage investment into developed markets?I develop a two-part theory to understand the motivations and capacity of governments to support outward foreign direct investment (OFDI) as a development strategy. I apply existing theories of the multinational to show that when firms from developing countries invest abroad, they can transfer several developmental benefits - in the form of technology, knowledge, finance, and employment - back to the home economy. OFDI can thus help developing countries integrate into global value chains and boost national economic competitiveness. To examine variation in government support for OFDI, I argue that when countries face global and domestic constraints towards attracting inward foreign direct investment (IFDI), they have stronger incentives to support an outward-focused investment strategy. On the capacity side, when governments have stronger motivations to support OFDI, they can encourage the internationalization of their firms by supporting them with long-term finance disbursed from national development banks. To test my hypotheses, I employ a mixed-methods approach using cross-national quantitative data and a comparative case study analysis of OFDI patterns in India, Brazil, and Turkey. In the quantitative analysis, I establish a statistical correlation between state finance and outward investment, conditional on participation in global value chains, in 72 middle-income countries. I further test the causal mechanisms underpinning my theory through paired case study comparisons, drawing from 84 interviews conducted with firm managers, development bank officials, and policymakers conducted over thirteen months of fieldwork in India and Brazil. This dissertation project offers an explanation of the origins and consequences of changing global investment patterns, and examines the conditions under which governments can harness these flows to promote economic development.
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