National corporate responsibility institutions as a determinant of FDI: a subdimensional analysis

Grounded in the central notion of (FDI) legitimacy in international business, this study aims to identify host country corporate responsibility institutions as an important FDI determinant. Considering the multidimensionality of such institutions and the fundamental differences between developed countries (DCs) and developing countries (DgCs), the author aspires to shed light on the development stage-differentiated mechanisms through which the environmental (ENV), social (SOC) and governance (GOV) subdimensions impact FDI inflow, both individually and interactively. The UNCTAD’s Bilateral FDI Statistics spanning 2001–2012 was used as the primary data source. The ENV, SOC and GOV subdimensions of AccountAbility’s National Corporate Responsibility Index (NCRI) were used as the proxies for the three subdimensions of host country corporate responsibility institutions. After merging with data on control variables, the final sample size was 34,847 observations, of which 14,452 were FDI inflows to 42 DgCs from 142 origin countries, and 20,395 were FDI inflows to 37 DCs from 163 origin countries. The Poisson pseudo maximum likelihood (PPML) estimator was used for gravity model estimation. This study found that: (1) ENV has a positive and negative effect on FDI in DgCs and DCs, respectively; (2) SOC has a positive effect on FDI in DgCs, but the relationship is reversed in DCs; and (3) GOV has a negative and positive effect on FDI in DgCs and DCs, respectively. There also exist two-way interaction effects among the three subdimensions, and these effects are further moderated by host country development stage. A legitimacy-centered approach serves to reconcile and integrate conflicting arguments and provide fuller insights into FDI behavior in the co-evolutionary ‘legitimacy game’ between multinationals, the host government and civil society.