Complex Dependence in Foreign Direct Investment: Network Theory and Empirical Analysis

36 Pages Posted: 15 Aug 2017 Last revised: 29 Apr 2018

See all articles by John Schoeneman

John Schoeneman

Pennsylvania State University, College of the Liberal Arts, Department of Political Science

Boliang Zhu

Pennsylvania State University - Department of Political Science

Bruce A. Desmarais

Pennsylvania State University

Date Written: August 13, 2017

Abstract

We develop theory that accounts for complex dependence in foreign direct investment (FDI) relationships. Conventional theories of FDI focus on firm-, country-, or dyad-level characteristics to account for cross-border capital movements. Yet, today's globalization 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 flows 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 both reciprocity and transitivity. Our network approach to studying FDI provides new insights into global investment flows and their political and economic consequences. In addition to our substantive findings, we offer a broad methodological contribution by introducing the ERGM for count-weighted networks in political science.

Keywords: Foreign Direct Investment, Network Analysis, Dyadic Data, Exponential Random Graph Model, International Political Economy

JEL Classification: F02, F20, F47

Suggested Citation

Schoeneman, John and Zhu, Boliang and Desmarais, Bruce A., Complex Dependence in Foreign Direct Investment: Network Theory and Empirical Analysis (August 13, 2017). Available at SSRN: https://ssrn.com/abstract=3018031 or http://dx.doi.org/10.2139/ssrn.3018031

John Schoeneman (Contact Author)

Pennsylvania State University, College of the Liberal Arts, Department of Political Science ( email )

University Park
State College, PA 16801
United States

Boliang Zhu

Pennsylvania State University - Department of Political Science ( email )

University Park, State College, PA 16801
United States

Bruce A. Desmarais

Pennsylvania State University ( email )

University Park, State College, PA 16801
United States

HOME PAGE: http://sites.psu.edu/desmaraisgroup

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