UC Irvine

How do multinational enterprises (MNEs) in or planning to invest in a target state respond to economic coercion -- the threat or imposition of economic sanctions? The ability of states to cajole, coerce, or convince MNEs to alter their investment strategies speaks to the usefulness of economic statecraft and to the potential impact of economic statecraft on the global economy. I argue that explaining MNE responses to economic coercion requires (1) attending to the different pathways through which sanctions coerce MNEs and other economic actors and (2) accounting for systematic differences in MNEs' economic logics -- the advantages that enable these enterprises to invest abroad in the first place. Economic sanctions can restrict foreign investment through direct legal restrictions, reputation costs, or negative indirect effects on the target economy. In turn, two economic logics predict whether MNEs will be vulnerable or resistant to these costs. First, MNEs invest in the target state seeking either resources or another market. Second, MNEs require either significant capital investment or relatively little. I develop and test hypotheses about the interactions between sanction costs and MNE logics. I first test the framework using an extreme case: Libya from 1951 to 2005. Libya was subjected to increasingly severe unilateral and multilateral economic coercion, illuminating the processes and sequences of MNE decisions. I trace these processes using case histories, newspaper reports, and archival data. I then examine the framework’s generalizability by examining U.S. outward FDI stocks in the petroleum, manufacturing, and wholesale trade industries in non-OECD states, Mexico, and Turkey between 1989 and 2005. Using Bayesian time-series cross-sectional multilevel models, I find key differences between industries’ vulnerabilities to economic coercion. Overall, I find evidence that economic coercion is correlated with minimal disinvestment – i.e., investment that leaves a target state. I conclude by examining whether sanctioned states suffer from underinvestment, becoming less competitive destinations for world FDI. My statistical results suggest that while economic coercion does not lead many MNEs to leave a target state, it is more effective at deterring MNEs from making new investments. I conclude with the scholarly and policy ramifications of these results.