US Multinationals and Human Rights: A Theoretical and Empirical Assessment of Extractive vs. Non-Extractive Sectors

De Soysa, Indra; Janz, Nicole; Vadlamannati, Krishna C

Abstract

The consequences of foreign direct investment (FDI) for human rights protection are poorly understood. We propose that the impact of FDI varies across industries. In particular, extractive firms in the oil and mining industries go where the resources are located and are bound to such investment, which creates a status quo bias among them when it comes to supporting repressive rulers ("location-bound effect"). The same is not true for non-extractive MNCs in manufacturing or services, which can, in comparison, exit problematic countries more easily. We also propose that strong democratic institutions can alleviate negative impacts of extractive FDI on human rights ("democratic safeguard effect"). Using US FDI broken up into extractive and non-extractive industries in 157 host countries (1999-2015), we find support for these propositions. Extractive FDI is associated with more human rights abuse, but non-extractive FDI is associated with less abuse, after controlling for other factors, including concerns about endogeneity. We find also that the negative human rights impact of extractive FDI vanishes in countries where democratic institutions are stronger. Our results are robust to a range of alternative estimation techniques.

Citation

De Soysa, I., Janz, N., & Vadlamannati, K. C. (2020). US Multinationals and Human Rights: A Theoretical and Empirical Assessment of Extractive vs. Non-Extractive Sectors. Business and Society, 60(8), 2136-2174. https://doi.org/10.1177/0007650320928972

• Journal Article Type: Article
• Acceptance Date: Mar 29, 2020
• Online Publication Date: Jul 3, 2020
• Publication Date: Nov 1, 2020
• Deposit Date: May 19, 2020
• Publicly Available Date: Jul 3, 2020
• Journal: Business and Society
• Print ISSN: 0007-6503
• Electronic ISSN: 1552-4205
• Publisher: SAGE Publications
• Peer Reviewed: Peer Reviewed
• Volume: 60
• Issue: 8
• Pages: 2136-2174
• DOI: https://doi.org/10.1177/0007650320928972
• Keywords: human rights; foreign direct investment; multinational corporations; industry sectors; extractive FDI; democratic institutions
• Public URL: https://nottingham-repository.worktribe.com/output/4469992
• Publisher URL: https://journals.sagepub.com/doi/10.1177/0007650320928972