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Complex dependence in foreign direct investment: network theory and empirical analysis

Published online by Cambridge University Press:  02 December 2020

John Schoeneman Open the ORCID record for John Schoeneman [Opens in a new window] ,
Boliang Zhu  and
Bruce A. Desmarais Open the ORCID record for Bruce A. Desmarais [Opens in a new window]
John Schoeneman*
Affiliation:
Oklahoma State University, Stillwater, OK, USA
Boliang Zhu
Affiliation:
Department of Political Science, Pennsylvania State University, University Park, PA16802-1503, USA
Bruce A. Desmarais
Affiliation:
Department of Political Science, Pennsylvania State University, University Park, PA16802-1503, USA
*
*Corresponding author. Email: john.schoeneman@okstate.edu
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Abstract

We develop a theoretical framework that accounts for complex dependence in foreign direct investment (FDI) relationships. Conventional theories of FDI focus on firm-, industry-, country-, or dyad-level characteristics to account for cross-border capital movements. Yet, today's globalized economy is characterized by the increasing fragmentation and dispersion of production processes, which gives rise to complex dependence among production relationships. Consequently, FDI flows should be represented and theorized as a network. Specifically, we argue that FDI relationships are reciprocal and transitive. We test these hypotheses along with conventional covariate determinants of FDI using an exponential random graph model (ERGM) for weighted networks. We find that FDI networks exhibit strong reciprocity and transitivity. Our network approach to studying FDI provides new insights into cross-border investment flows and their political and economic consequences, and more generally the dynamics of globalization. In addition to our substantive findings, we offer a broad methodological contribution by introducing the ERGM for count-weighted networks in political science.

Keywords

International political economyquantitative methodsforiegn direct investmentsocial network analysis
Type
Original Article
Information
Political Science Research and Methods , Volume 10 , Issue 2 , April 2022 , pp. 243 - 259
Copyright
Copyright © The Author(s), 2020. Published by Cambridge University Press on behalf of the European Political Science Association

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