Insulating for Investment: Regulatory Institutions and the Multinational Firm in Infrastructure Industries
Year: 2017
Type: dissertation
Abstract: Why do some countries obtain more foreign direct investment (FDI) in infrastructure industries than others? Previous explanations for FDI have emphasized that host states mustprovide foreign investors with a credible commitment to alleviate concerns about political risks.\nBuilding on this insight, this project argues that countries’ sectoral regulatory institutions – a frequently overlooked factor in FDI research – can help states produce this commitment. The main argument is that sectoral regulatory agencies that are designed to be politically independent insulate foreign investors in the telecommunications and electricity industries from political risks, thereby increasing FDI into these sectors. I also identify that the two design features that enable these institutions to achieve political independence are legal separation from other government institutions and long, fixed terms for agency leadership. Additionally, I show that independent regulatory agencies (IRAs) influence the timing of FDI as well as moderate the relationship between regime type and government partisanship, respectively, and FDI.\nTo test these arguments, I utilize an original dataset that captures the degree of political independence embedded into countries' IRAs governing these two industries for 32 countries in Latin America and Asia. Statistical results support the notion that IRAs increase FDI into these sectors and that they influence investments in these three additional ways. Qualitative case evidence is also used to support the statistical findings. In demonstrating that bureaucratically centered regulatory institutions influence the investment decisions of multinational firms, these findings have implications for how reform-minded developing countries can increase their\nprospects for attracting FDI.\nAs a secondary focus, I examine if telecommunications and electricity FDI translates into improved services for populations in these 32 countries – an important question since infrastructure projects are prone to becoming wasteful “white elephants”. I find that FDI in these industries does increase access to phones and power, but that there are different dynamics across sectors. In telecommunications – a sector that generates relatively few white elephants – FDI increases access to phones in a straightforward matter. However, in electricity – a sector that generates relatively many white elephants – foreign investments improve access to power when they become a larger share of GDP.
Author: Andrew F. Hart
Language: English
Subfield: Strategy and Management
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2891097332