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State-owned MNCs and host country expropriation risk: The role of home state soft power and economic gunboat diplomacy

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Abstract

Expropriation risk has a binding effect on foreign direct investment (FDI). However, state-owned multinational corporations may counter the monopoly power of the host state by leveraging the political influence of their home government. The magnitude of this counter force, we argue, may vary, depending on the strength of political relations between the home and host state, and the level of economic dependence of the host country on the home market. We find supporting evidence of our hypotheses using Chinese firm-level FDI information between 2003 and 2010.

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Notes

  1. For example, Fu (2008) reported that China Petroleum and Chemical Corporation (Sinopec) received a government subsidy of 12.3 billion Yuan ($1.74 billion) to cover refining losses in 2008, which constituted a third consecutive year for its getting a huge cash injection in state compensation. Unirule, a Chinese think tank, estimated that not having to pay for the land they occupy was a subsidy to SOEs worth some 4 trillion Yuan ($640 billion) between 2001 and 2009. In 2009 alone, about 85% of China’s $1.4 trillion in bank loans went to SOEs (The Economist, 2012). This evidence poses a serious question of how long the Chinese state, regardless of how deep its pocket is, can endure the SOEs’ slow burn of the country’s wealth.

  2. To reduce data loss in our sample, we use the average score for 2008 and 2007 to estimate a score for political relations of 2009, because the data from Gartzke (2008) ends in 2008.

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Acknowledgements

I thank the guest editors and the anonymous reviewers for their comments that help me improve the paper. This paper has also benefited from comments and suggestions provided by Professor Paul M. Vaaler from Carlson School of Management, University of Minnesota, Professor Quan Li from the Department of Political Science, Texas A&M University, and Professor David B. Allen from Surrey Business School. Data collection assistance provided by Eric An from GTA and the financial support from Surrey Business School are both highly appreciated. All errors are my own.

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    Jing-Lin Duanmu

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Correspondence to Jing-Lin Duanmu.

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Accepted by Kannan Ramaswamy, Guest Editor, 1 March 2014. This paper has been with the author for two revisions.

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Duanmu, JL. State-owned MNCs and host country expropriation risk: The role of home state soft power and economic gunboat diplomacy. J Int Bus Stud 45, 1044–1060 (2014). https://doi.org/10.1057/jibs.2014.16

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