Spanning the Institutional Abyss: The Intergovernmental Network and the Governance of Foreign Direct Investment

41 Pages Posted: 26 Sep 2008 Last revised: 25 Jul 2011

See all articles by Juan Alcacer

Juan Alcacer

Harvard University - Strategy Unit

Paul L. Ingram

Columbia Business School - Management

Date Written: August 22, 2008

Abstract

Global economic transactions such as foreign direct investment must extend over an institutional abyss between the jurisdiction, and therefore protection, of the states involved. Intergovernmental organizations (IGOs), whose members are states, represent an important attempt to span this abyss. IGOs are mandated variously to smooth economic transactions, facilitate global cooperation, and promote cultural contact and awareness. We use a network approach to demonstrate that the connections between two countries through joint-membership in the same IGOs are associated with a large positive influence on the foreign direct investment that flows between them. Moreover, we show that this effect occurs not only in the case of IGOs that focus on economic issues, but also on those with social and cultural mandates. This demonstrates that relational governance is important and feasible in the global context, and for the most risky transactions. Finally we examine the interdependence between the IGO network and the domestic institutions of states. The interdependence between these global and domestic institutional forms is complex, with target-country democracy being a substitute for economic IGOs, but a complement for social and cultural IGOs.

Suggested Citation

Alcacer, Juan and Ingram, Paul L., Spanning the Institutional Abyss: The Intergovernmental Network and the Governance of Foreign Direct Investment (August 22, 2008). Harvard Business School Strategy Unit Working Paper No. 09-045, Available at SSRN: https://ssrn.com/abstract=1273604 or http://dx.doi.org/10.2139/ssrn.1273604

Juan Alcacer (Contact Author)

Harvard University - Strategy Unit ( email )

Harvard Business School
Soldiers Field Road
Boston, MA 02163
United States
617 495-6338 (Phone)
617 495-0355 (Fax)

Paul L. Ingram

Columbia Business School - Management ( email )

3022 Broadway
New York, NY 10027
United States

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