Where Angels Fear to Tread: FDI into Sanctioned Locations

Abstract

Multinational enterprises (MNEs) are increasingly challenged by the strategic implications of economic sanctions, which are often imposed in response to geopolitical instability, international conflict, and violations of international norms. In this paper, we argue that sanctions busters are typically better resourced firms rather than more marginal players, thus identifying a dark side to resource munificence. We also build on institutional theory to examine contextual conditions and find that effective home country institutions deter FDI to sanctioned locations and decrease the magnitude of the moderating effect of firm resources and experience. Moreover, being located in a sanctioned location leads firms to undertake more FDI to other sanctioned locations because of the resulting specific ownership advantages. We test our conjectures on a large panel dataset and find support for our arguments. Our results have important implications for managers and policy makers in terms of international management and institutional dynamics.

Keywords: Sanctions, Sanctioned locations, FDI, Resource-based view (RBV), International experience, Institutions