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Coercive Assets? Foreign Direct Investment and the Use of Economic Sanctions

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  • Dong-Hun Kim

Abstract

How does foreign direct investment (FDI) affect the use of economic coercion? This article argues that while FDI matters, the effect depends on the entry mode of the FDI. The economic interdependence created by FDI does not have a monotonic effect on economic statecraft because the relative costs incurred by economic disruption differ depending on the forms of foreign investment. In particular, the FDI that creates wholly-owned subsidiaries (for example, cross-border mergers and aquisitions) imposes greater costs to the sender's firms than cross-border joint ventures with local partners, while FDI through joint ventures incurs greater costs for the host than the home country and its firms. By utilizing US sanction episodes from the Threat and Imposition of Economic Sanctions (TIES) dataset, the empirical analysis supports the argument. The results show that economic sanctions are less likely to occur as the share of FDI through cross-border mergers and acquisitions increases.

Suggested Citation

  • Dong-Hun Kim, 2013. "Coercive Assets? Foreign Direct Investment and the Use of Economic Sanctions," International Interactions, Taylor & Francis Journals, vol. 39(1), pages 99-117, January.
    • Handle: RePEc:taf:ginixx:v:39:y:2013:i:1:p:99-117
    DOI: 10.1080/03050629.2013.751305
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    References listed on IDEAS

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    1. Caves,Richard E., 2007. "Multinational Enterprise and Economic Analysis," Cambridge Books, Cambridge University Press, number 9780521677530, September.
    2. Caves,Richard E., 2007. "Multinational Enterprise and Economic Analysis," Cambridge Books, Cambridge University Press, number 9780521860130, September.
    3. Peter J. Buckley, 2010. "Foreign Direct Investment, China and the World Economy," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-24832-8, March.
    4. Theodore H. Moran & Edward M. Graham & Magnus Blomstrom, 2005. "Does Foreign Direct Investment Promote Development?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3810, April.
    5. Edward M. Graham & David Marchick, 2006. "US National Security and Foreign Direct Investment," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3917, April.
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    Cited by:

    1. Jun Wen & Xinxin Zhao & Chun‐Ping Chang, 2024. "The impact of international sanctions on innovation of target countries," Economics and Politics, Wiley Blackwell, vol. 36(1), pages 39-79, March.
    2. Alexander Kriebitz & Laud Ammah, 2020. "Statistical Capacity, Human Rights and FDI in Sub-Saharan Africa Patterns of FDI Attraction in Sub-Saharan Africa," Journal of Management and Sustainability, Canadian Center of Science and Education, vol. 10(1), pages 162-162, July.
    3. Jin Mun Jeong, 2020. "Economic sanctions and income inequality: impacts of trade restrictions and foreign aid suspension on target countries," Conflict Management and Peace Science, Peace Science Society (International), vol. 37(6), pages 674-693, November.

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