The Evolution of Business Groups’ Corporate Social Responsibility

Abstract

In this theoretical paper, I analyze business groups’ corporate social responsibility (CSR). Building on economic thinking, I propose that the level and diversity of CSR investments of business groups evolve with the development of the country, as a result of the interaction of two drivers: the level of infrastructure deficiencies and the cost of negative externalities. I explain that in underdeveloped countries, business groups have high levels and low diversity of CSR investments, focusing on the social arena to compensate for infrastructure deficiencies. As countries implement pro-market reforms and become emerging economies, the level of CSR investments diminishes as business groups can rely on external providers and the government for supporting infrastructure, but diversity increases to address the growing costs of negative externalities in the environmental and economic arenas. As countries further develop to become advanced economies, business groups’ level and diversity of CSR investments increase to prevent the high costs of negative externalities in the social, environmental, and economic arenas proactively.

Keywords: Corporate social responsibility, business groups, externalities, infrastructure, evolution, emerging markets

JEL Classification: M14, M16, H42