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Journal of International Business Studies

, Volume 47, Issue 9, pp 1032–1057 | Cite as

Racing to the bottom and racing to the top: The crucial role of firm characteristics in foreign direct investment choices

  • Maoliang Bu
  • Marcus WagnerEmail author
Article

Abstract

This study builds on the pollution haven and induced innovation arguments as explanations for firm behavior with regard to international environmental management and argues both need to be integrated. This implies that foreign direct investment is capable of facilitating a “race to the bottom” and a “race to the top” simultaneously. Using novel and detailed data, we test whether environmental capabilities and weaknesses and other characteristics affect US firms’ foreign direct investment choices in Chinese provinces with more or less stringent environmental regulation. This enables a more detailed analysis by allowing country regulation to vary spatially and over time. Our study finds that heterogeneity in capabilities and firm size jointly determine foreign direct investment and in doing so shows the simultaneity of a race to the bottom and to the top. Specifically, firms with environmental capabilities invest in more stringently regulated regions and firms with weaknesses are less likely to target such regions. These diverging effects are both moderated by firm size, which further amplifies each of them. Our findings underscore the need to integrate pollution haven and induced innovation arguments in a joint analysis. They furthermore show the relevance of methodological choices when testing hypotheses integrating the above arguments empirically.

Keywords

resource-based view or resource-based theory pollution haven multivariate analysis China United States 

Résumé

Cette étude s’appuie sur les arguments du paradis pour pollueurs et de l’innovation induite comme des explications du comportement des firmes en ce qui concerne la gestion de l’environnement à l’international et elle fait valoir que ces deux types d’arguments doivent être intégrés. Cela implique que l’investissement direct étranger est capable de faciliter en même temps un « nivellement par le bas » et une « course vers le haut ». À l’aide de données nouvelles et détaillées, nous vérifions si les capacités et faiblesses environnementales, et d’autres caractéristiques, influent sur les choix d’investissements directs étrangers des entreprises américaines dans les provinces chinoises où les réglementations environnementales sont plus ou moins strictes. Cela favorise une analyse plus détaillée, en permettant aux réglementations du pays de varier dans l’espace et dans le temps. Notre étude souligne que l’hétérogénéité des capacités et de la taille des entreprises détermine conjointement l’investissement direct étranger et, parallèlement, montre la simultanéité d’un nivellement par le bas et d’une course vers le haut. Plus précisément, les entreprises avec des capacités environnementales investissent dans des régions plus strictement réglementées et les entreprises avec des faiblesses environnementales ont moins tendance à cibler ces régions. Ces effets divergents sont tous deux modérés par la taille de l’entreprise, qui amplifie encore chacun d’eux. Nos résultats soulignent la nécessité d’intégrer les arguments du paradis pour pollueurs et de l’innovation induite dans une analyse conjointe. En outre, ils montrent la pertinence des choix méthodologiques lors du test d’hypothèses intégrant empiriquement ces arguments.

Resumen

Este estudio se basa en los argumentos de paraísos de contaminación e innovación inducida como explicación para el comportamiento de las empresas en relación a la gestión ambiental internacional y sostiene que ambos necesitan ser integrados. Esto implica que la inversión extranjera directa es capaz de facilitar una “carrera hacia el fondo” y una “carrera hacia la cima” simultáneamente. Usando datos nuevos y detallados, medimos si las capacidades y debilidades medioambientales y otras características afectan las opciones de inversión extranjera directa de empresas estadounidenses en las provincias chinas con más o menos estricta regulación ambiental. Esto permite un análisis más detallado, permitiendo a la regulación del país variar espacialmente y a través del tiempo. Nuestro estudio encuentra que la heterogeneidad en las capacidades y el tamaño de la empresa en conjunto determinan la inversión extranjera directa y al hacerlo se muestra la simultaneidad de una carrera hacia el fondo y hacia la cima. Específicamente, en empresas con capacidades medioambientales invierten en regiones con regulaciones medioambientales más estrictas y empresas con debilidades son menos propensas a preferir esas regiones. Estos efectos divergentes son ambos moderados por el tamaño de la empresa, que amplifica aún más cada uno de ellos. Nuestros hallazgos resaltan la necesidad de integrar los argumentos de los paraísos de contaminación y los de innovación inducida en un análisis conjunto. Adicionalmente muestran la relevancia de las opciones metodológicas al probar hipótesis integrando de manera empírica los argumentos presentados anteriormente.

Resumo

Este estudo baseia-se nos argumentos do paraíso da poluição e da inovação induzida como explicações para o comportamento da firma no que diz respeito à gestão ambiental internacional e argumenta que ambos precisam ser integrados. Isso infere que o investimento estrangeiro direto é capaz de facilitar simultaneamente uma “corrida para o fundo” e uma “corrida para o topo”. Usando dados novos e detalhados, nós testamos se as capacidades e fragilidades ambientais e outras características afetam as escolhas de investimento direto estrangeiro de empresas norte-americanas em províncias chinesas com regulação ambiental mais ou menos rigorosa. Isto permite uma análise mais detalhada, permitindo que a regulação do país varie espacialmente e ao longo do tempo. Nosso estudo descobriu que a heterogeneidade nas capacidades e no tamanho da empresa determinam conjuntamente o investimento direto estrangeiro, e ao fazê-lo, mostra a simultaneidade de uma corrida para o fundo e para o topo. Especificamente, as empresas com capacidades ambientais investem em regiões mais rigorosamente regulamentadas e as empresas com deficiências têm menos probabilidade de investir nessas regiões. Ambos os efeitos divergentes são moderados pelo tamanho da empresa, o que amplia ainda mais cada um deles. Nossos resultados sublinham a necessidade de integrar os argumentos sobre paraíso de poluição e inovação induzida em uma análise conjunta. Eles ainda mostram a relevância das escolhas metodológicas ao testar hipóteses que integram empiricamente os argumentos acima.

概要

这项研究建立在解释国际环境管理方面公司行为的污染庇护港和诱发创新的论点上,并认为两者需要进行整合。这意味着外国直接投资是能够同时促进“竞逐底端”和“竞逐顶端”。使用新颖而详细的数据,我们测试环保能力和弱点及其它特征是否影响美国公司在或多或少有严格环境监管的中国省份外国直接投资的选择。这能通过允许国家规定在空间和时间上变化得到更详细的分析。我们的研究发现,异质性的能力和企业规模共同确定外国直接投资,这样做显示了竞逐底端和顶端的同时性。具体来说,具有环保能力的企业投资更严格管控的区域,而有弱点的企业不太可能瞄准这样的区域。这发散的影响都是由进一步把它们每个都放大了的企业规模所调节的。我们的研究结果强调有必要通过联合分析整合污染庇护港和诱发创新的论点。它们进一步显示在实证上检验整合上述论点的假说时方法选择的重要性。

Notes

Acknowledgments

We are grateful for the invaluable comments of two anonymous reviewers and of our always constructive editor, Mona Makhija. Furthermore, we thank Jon Moon, Chang-Hoon Oh and Till Talaulicar as well as seminar participants at the Centre of European Economic Research in Mannheim (especially Timo Goeschl) for very helpful feedback on earlier versions. Maoliang Bu acknowledges support of the Humboldt Foundation and the Science Foundation of the Ministry of Education of China (Grant No. 14JHQ017). The authors are in alphabetical order.

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Copyright information

© Academy of International Business 2016

Authors and Affiliations

  1. 1.School of BusinessNanjing UniversityNanjingChina
  2. 2.Faculty of Business Administration and EconomicsAugsburg University86159 AugsburgGermany

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