Outward foreign direct investment (OFDI) is often assumed to shift jobs abroad, yet evidence on its effects on firms’ domestic employment remains mixed. We argue that part of this variation can be explained by the organizational capacity constraints firms face when expanding internationally. Drawing on a Penrosean capacity-constraint perspective, we examine how the size of OFDI projects relative to firm size shapes domestic employment outcomes. Analyzing OFDIs by multinational enterprises from 13 emerging market economies, we find that the effect of OFDI on domestic employment strengthens at higher values of that relative size. This pattern reflects organizational capacity constraints at home, which become salient when firms undertake relatively large foreign expansion projects and require additional hiring. We also show that this relationship is moderated by establishment mode, state ownership, and regional orientation. The results suggest that not all OFDI projects yield the same domestic employment outcomes, highlighting the importance of firm-specific organizational constraints. OFDI projects representing approximately 10
While demographic change is an acknowledged influence on location advantages, we highlight the lesser-studied phenomenon of demographic bifurcation—the simultaneous co-existence of rapidly aging, shrinking populations in some countries, and expanding working-age populations in others. How does demographic bifurcation affect the location choices of multinational firms, and the movement of capital and labor in a world characterized by geo-economic fragmentation that discourages cross-border migration? How will multinational firms respond, given their expertise in geo-arbitrage? We discuss emerging core-periphery models in a world consisting of geo-economic spheres of influence, how multinational firms might exploit new arbitrage opportunities, and how policymakers must find ways to avoid bifurcation becoming a liability. For demographic change not to become a liability, policymakers must coordinate within these interconnected domains, as new interdependencies emerge. We call for an interdisciplinary research agenda that integrates demography into the core of international business strategy and global value chain theory.
This study examines how foreign direct investment (FDI) in mining affects forestation levels and how host-country institutions shape this relationship. Drawing on the concept of the social license to operate, we argue that foreign-owned mines face greater scrutiny from both host-country and international stakeholders, thus having stronger incentives to adopt environmentally responsible practices than domestic-owned mines. These incentives are reinforced by foreign firms’ greater capacity to implement globally recognized environmental standards. We therefore posit that foreign-owned mines are associated with higher forestation than domestic-owned mines. We further explore whether this difference is especially pronounced in host countries with strong civil society participation. Using a novel dataset with satellite-based vegetation cover imagery for 1044 mines across 49 countries (2001–2023), we find robust evidence that foreign-owned mines are associated with higher forestation. We also find that foreign-owned mines maintain high forestation regardless of civil society pressure, indicating adherence to global standards. Domestic mines, however, exhibit significantly lower forestation than foreign-owned mines in countries with strong civil society participation, likely indicating limited capacity or motivation to engage in reforestation and ecological restoration to meet high societal expectations. This study advances understanding of FDI’s biodiversity impacts and offers insights for sustainable development policies.
Despite the rapid expansion of outward foreign direct investment (OFDI) from emerging economies, its domestic labour market consequences—particularly at the subnational level—remain poorly understood. This paper examines how OFDI from an emerging middle-income economy affects skill composition in home regional labour markets and whether these effects are heterogeneous across the income levels of destination countries. Using a region-sector panel dataset covering 32 Mexican regions and 13 sectors over the period 2007–2017, the analysis employs fixed effects and instrumental variable strategies to estimate the impact of OFDI on the relative demand for high- and low-skilled labour. The results reveal a curious case: in the short run, OFDI directed towards high-income economies is associated with skill downgrading at home, whereas OFDI towards middle-income economies has a skill-neutral effect on skill composition. By adopting a subnational perspective in an emerging economy context, the paper offers new evidence on the home-country effects of OFDI and the uneven domestic consequences of internationalisation. The findings point to a policy trade-off between knowledge acquisition abroad and the short-term evolution of domestic skill demand, underscoring the importance of complementary policies to ensure that OFDI supports human capital upgrading and inclusive sustainable development in emerging economies. For many years, outward foreign direct investment (OFDI) has been linked to economic development, often leading to skill upgrading in the home country. However, most studies focus on advanced economies, leaving a gap in understanding the effects of OFDI from middle-income countries. This article explores how OFDI from emerging economies, like Mexico, affects domestic skill composition, particularly at the regional level. The study finds that OFDI to high-income countries tends to downgrade skills at home, while investments in middle-income countries have a neutral effect. This article uses a region-sector analytical approach to examine the effects of OFDI on local labour markets in Mexico. It combines data from 32 Mexican regions and 13 sectors over a decade (2007–2017) to capture within-country differences. The study employs augmented cost-share equations, a method that helps understand how firms allocate resources to minimize costs, using fixed effects and instrumental variable regressions to address potential biases. The focus is on how OFDI affects the demand for high-skilled versus low-skilled labour. The study uses data from the ORBIS historical ownership database and Mexican Economic Censuses to analyse the number of affiliates abroad and their impact on local employment. The results show that OFDI to high-income countries leads to a decrease in demand for high-skilled labour at home, while increasing the demand for low-skilled labour. This suggests that Mexican firms may be relocating high-skilled functions abroad, leading to skill downgrading in the home country. In contrast, OFDI to middle-income countries does not significantly alter the skill composition, indicating a skill-neutral effect. These findings highlight the need for policies that address the short-term skill downgrading effects of OFDI, while also supporting long-term human capital development. In conclusion, the study provides new insights into the domestic effects of OFDI from emerging economies, emphasizing the importance of considering the destination country's development level. The findings suggest that strategic asset-seeking OFDI in high-income countries may lead to skill downgrading at home unless accompanied by policies that strengthen domestic human capital. Future research should explore the long-term productivity gains and regional development impacts of OFDI, as well as the potential for reverse technology transfers from foreign affiliates to parent firms. This text was initially drafted using artificial intelligence, then reviewed by the author(s) to ensure accuracy.
Cities play a crucial role in our societies and shape corporate actions in several ways. Their economic relevance poses an important policy question: Does the city in which the headquarters of a given company is located matter for its performance? If so, which urban dimensions matter more? We focus on the headquarters’ location because it acts as the firm’s central node of strategic, financial, and operational decisions, and a gateway to valuable resources. To date, no prior research has focused on this specific policy question, and no dominant paradigm exists to address it. Thus, we adopt a multilevel exploratory approach to inquire whether, and if so, how, the characteristics of a firm’s home city—corresponding to where a firm locates its headquarters—relate to firm performance. To do so, we use a unique 2014–2016 panel of 27,933 firm-year observations of 9952 public firms based in 127 cities—located in the U.S., Europe, and Asia. Our findings show that the home city matters to firm performance and distinct dimensions of the home city play a different role across geographical areas and industries. Thus, our work highlights the growing importance of urban ecosystems in shaping firm outcomes and provides new insights for policymakers and international business scholars.
Despite recognition that interregional and international linkages promote the innovative capacity of regions, their role in regional innovation policy has received limited academic attention, resulting in challenges on how to incorporate them effectively into policy. We argue that interregional linkages are not generic in nature but shaped by capabilities that are place- and activity-specific. This is clearly shown in the strengths and weaknesses in three types of regional collaborations – foreign direct investment, co-invention, and co-publication – that we identified across five EU regions that prioritized automotives in their regional smart specialisation strategies. Using a mixed-methods approach, we show that regions differ in the intensity and nature of interregional linkages, depending on their capabilities. Regions with a strong knowledge base in automotives manage to build effectively a range of strong connections that allow them to tap into complementary capabilities in other regions that support innovation and upgrading, in contrast to regions with a weak absorptive capacity. Consequently, interregional linkages can only be effectively integrated into innovation policies when they are place-based and activity-specific. We argue that, in the absence of targeted incentives to foster interregional connectivity, a substantial share of its potential for local innovation and regional upgrading remains untapped.
International trade is undergoing a period of profound upheaval. Politicians and observers have been trying to identify a paradigm that can capture the new disorder. This essay argues that no single paradigm is emerging; instead, trade policies are changing along several dimensions simultaneously. We can make sense of the new complexity by tracing those changes along four dimensions: the purposes for which governments regulate trade, the partners with whom they want businesses to trade, the products and services that they want to see traded, and the tools that they use to regulate trade. An analysis along these lines shows that competing narratives about globalization are motivating governments to embrace a multipurpose trade policy; to take a much more selective approach to their trading partners; to develop trade policies that are tailored to specific products, services, and supply chains; and to employ a much wider range of tools to shape supply chains than they did even a decade ago.
We explore the implications for international business of scenarios in which the gradual dealignment between geopolitics and geoeconomics has led to the emergence of two inward-looking political-economic groupings. These developments leave some countries and blocs, especially the European Union, only weakly aligned. Firms in some sectors are simultaneously vertically reintegrating, abandoning elements of global comparative advantage under technological or political pressure. International value chains and trade do not disappear as a result, but their shape and effects will change. How an MNE approaches these big shifts in the world economy will depend on its home location with implications for national economic policy, MNE internationalization, and corporate strategizing.
The paper examines the rise and recent contestation of sustainability due diligence as a new policy instrument for governing corporate conduct in global value chains. Emerging from decades of voluntary sustainability initiatives, due diligence has evolved into a regulatory approach that translates international commitments with regard to sustainability directly into corporate obligations, enabling regulators to govern across borders. These developments appeared to constitute a significant shift in sustainability governance enabling the further pursuit of “smart mix” policies which combine public and private governance instruments. Yet, mounting geopolitical tensions and deregulatory pressures have triggered significant political pushback against sustainability regulation. The paper illustrates this pushback by focusing on the EU’s Corporate Sustainability Due Diligence Directive which has been substantially weakened. The paper argues that this retrenchment risks undermining long-term sustainability objectives and placing firms in an increasingly complex regulatory environment. It concludes by outlining implications for international business and reflections on the liberal international order in a post-globalization context.
There are growing signs that the world order is changing, as China’s power rises and the United States (US) steps back from aspects of global leadership. This commentary examines three alternative world orders that may emerge from this shift, as well as the strategies that companies of various types should undertake in each scenario. The world orders considered are: (1) bipolarity, characterized by rivalry and bloc formation between the US and China; (2) dual hegemony, in which the US and China each provide complementary global public goods in ways that sustain economic openness; and (3) power transition, in which China displaces the US as the dominant hegemonic power. After outlining each scenario, we analyze the implications for export-oriented producers, import-competing firms, and multinational enterprises (MNEs). We argue that export-oriented producers and MNEs are generally disadvantaged under bipolarity, advantaged under dual hegemony, and face near-term disruption under power transition, though they may benefit in the long run if a stable China-led order emerges. Import-competing firms experience the opposite pattern: they are winners under bipolarity, losers under dual hegemony, and near-term beneficiaries in a power transition scenario. We provide strategies that firms of each type should use to mitigate geopolitical risks and seize market opportunities.
This article evaluates one of the most used data sources to measure geopolitics in international business research – United Nations General Assembly (UNGA) voting – and compares it to other commonly used databases of newspaper articles’ sentiment (GPR index) and global sanctions (GSDB). Despite the popularity of UNGA data, such operationalizations have neither been critically discussed nor juxtaposed in international business literature. We discuss the explanatory power of the most used operationalizations based on UNGA voting and juxtapose them with other measures to discuss ways forward in capturing geopolitical relationships, and their faceted impact on firms and governments in the 21st century. We find substantial divergences across measures based on these data sources and critically discuss when and how they capture distinct geopolitical mechanisms. We posit that UNGA voting may be best suited for cross-country comparisons of geopolitical relationships, whereas the GPR index and the GSDB may capture rapidly unfolding geopolitical events to a greater extent. We argue that the measures we assess are complementary rather than interchangeable and provide theory-driven guidance for their appropriate use in studies of MNE behavior and FDI.
Voluntary sustainability standard organizations (VSSOs) are influential non-state actors shaping the governance of global value chains, especially in low- and middle-income economies (LMIEs) where transnational production is concentrated. They play a pivotal role in aligning international trade and investment flows with sustainability and development objectives. Yet, their diffusion across LMIEs remains uneven, and the institutional determinants of their geographical presence remain poorly understood. Focusing on the global agrifood sector—where VSSOs are particularly widespread—this study provides a systematic, cross-national analysis of how national institutional environments relate to VSSOs’ geographical presence. Using a novel dataset covering 131 agrifood VSSOs and country-level indicators of institutional development, we build a VSSO–country network and apply correlation analyses to examine which institutional dimensions co-vary with VSSO presence. Results show that VSSOs are significantly more active in countries with well-developed trade, technical assistance, financial, and social protection institutions—key enablers of private sustainability governance. Conversely, we find no association between the strength of environmental institutions and VSSO diffusion. We build on these findings to identify institutional development targets that LMIE policymakers should consider if seeking to promote VSSO diffusion as part of their policy goals and in response to value-capture opportunities in GVCs.
Drawing on a qualitative study of the French textile industry, this paper examines how Circular Economy (CE) policies impact on business model innovation and the geography, organization, and environmental upgrading of global value chains (GVCs). Our findings show that while policies which promote practices such as eco-design, reuse, and recycling have stimulated change, their impact varies significantly by firm type. Multinational lead firms have mostly reacted to policy incentives by integrating minor circular adaptations into pre-existing linear, volume-driven business models, resulting in little change to the organization or geography of their GVCs. Born-circular firms, by contrast, have developed innovative value propositions that embed circularity at their core, seeking to reorganize GVCs both geographically and organizationally, notably by integrating novel actors and creating inter-sectoral linkages. However, these firms faced significant commercial and technical constraints and remained limited in scale and influence. Overall, although these adaptations have led to the integration of new intermediary actors across the value chains studied, they have generally failed to trigger systemic change or geographic shifts. While broader EU-level policies have the potential to drive more far-reaching GVC restructuring and environmental upgrading, the challenges identified here will persist, hampering progress and making sustainability outcomes uncertain.
Multinational enterprises are central to today’s economy, simultaneously driving environmental pressures and holding capabilities to mitigate them. What matters for policymaking is how cross-border firms that orchestrate global value chains shape environmental outcomes that spill over borders, and how policy mixes can steer behaviors. We advance a policymaking perspective, framework, and research agenda on the international business–natural environment nexus. They direct scholars to specify geo-physical, geo-economic, and geo-political linkages; trace how policy instruments shape firm responses, how these scale into system trajectories, and how feedback/feedforward loops alter policy and strategy over time and across places; and unravel emerging tensions.
To accelerate the pace of green transformation, a country relies heavily on the environmental performance of its firms. In this paper, we investigate whether firms with foreign ownership are more likely to adopt green management practices that help these firms to monitor and reduce their environmental impacts. Using firm-level data for 31 countries in Eastern Europe, Central Asia, and North Africa, we show that foreign ownership increases the likelihood of adopting green management practices. In addition, we reveal that the magnitude of the relationship depends on host and home country characteristics—holding only for firms (1) in high- and upper-middle-income countries and (2) in countries that receive the bulk of their foreign direct investment from countries with relatively good environmental performance.
