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Sister cities, cross-national FDI, and the subnational FDI location decision

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Abstract

We investigate how intergovernmental ties at subnational levels between home and host countries influence the intensity and location of foreign direct investment (FDI) inflows. We focus on an intriguing type of subnational tie, namely, International Friendship (Sister) Cities. A sister city is a decentralized form of intergovernmental relationship that provides a platform by which a multinational corporation (MNC) can approach a local government, customers, and clients to acquire localized information and political capabilities. We argue that cities with a sister-city relationship attract more FDIs than other similar cities within a host country. The benefit extends to the national level as MNCs have higher FDI levels in host countries with a greater number of sister cities with their home country. We further investigate whether the effect of sister cities on an MNC’s country selection is greater when host-country subnational governments have a higher degree of autonomy relative to the national government, and lesser when governments have a higher level of policy uncertainty. Using data from the 1990–2009 period, we find consistent support for our ideas as tested at two levels of analysis: a city-level matched sample analysis on Japanese FDI inflows, and a country-level analysis on Japanese MNCs’ country selection.

French

Nous étudions comment les liens intergouvernementaux au niveau infranational entre les pays d'origine et d'accueil influencent l'intensité et la localisation des entrées d'investissements directs à l’étranger (IDE). Nous nous focalisons sur un type fascinant de lien infranational, à savoir les villes liées d’amitié internationale (villes jumelées). Une ville jumelée est une forme décentralisée de relation intergouvernementale qui fournit une plate-forme par laquelle une entreprise multinationale (EMN) peut s’approcher d’une administration locale, des consommateurs et des clients pour acquérir des informations localisées et des capacités politiques. Nous argumentons que les villes ayant un jumelage attirent plus d'IDE que d'autres villes similaires dans un pays d'accueil. L'avantage s'étend au niveau national, car les EMN ont des niveaux d'IDE plus élevés dans les pays d'accueil ayant un plus grand nombre de villes jumelées avec leur pays d'origine. Nous cherchons en outre à déterminer si l’impact des villes jumelées sur la sélection des pays d’accueil d’une EMN s’accroît lorsque les pouvoirs infranationaux du pays d’accueil ont un degré d’autonomie plus élevé par rapport au gouvernement national, et s’amoindrit lorsque les gouvernements ont un niveau d’incertitude politique plus élevé. Nos résultats, appuyés sur les données de la période 1990-2009, confirment nos idées testées à deux niveaux d’analyse : au niveau des villes, avec une analyse à échantillon apparié sur les entrées d’IDE japonais, et au celui des pays, avec une analyse sur la sélection des pays d’accueil des EMN japonaises.

Spanish

Investigamos como los lazos intergubernamentales a nivel sub-nacional entre los países de origen y destino influencian la intensidad y ubicación de los flujos entrantes de inversión extranjera directa (IED). Nos enfocamos en un fascinante tipo de vínculo sub-nacional, concretamente, las Ciudades Hermanas Internacionales. Una ciudad hermana es una forma descentralizada de relación intergubernamental que proporciona una plataforma mediante la cual una empresa multinacional (EMN) puede acercarse a un gobierno local, consumidores, y clientes para adquirir información localizada y capacidades políticas. Sostenemos que las ciudades con una relación de ciudad hermana atraen más IED que otras ciudades similares dentro del país anfitrión. El beneficio se extiende al nivel nacional debido que las EMN tienen mayores niveles de IED en países anfitriones con un mayor número de ciudades hermanas con su país de origen. Además, investigamos si el efecto de ciudades hermanas en la selección de países por parte de las EMN es mayor cuando los gobiernos sub-nacionales del país tienen un mayor grado de autonomía con relación al gobierno nacional, y menor cuando los gobiernos tienen un mayor nivel de incertidumbre política. Usando datos del periodo 1990-2009, encontramos un apoyo consistente para nuestras ideas probadas en dos niveles de análisis: un análisis de muestra emparejada a nivel ciudad sobre los flujos de entrada de IED japonesa, y análisis a nivel país sobre la selección de países por parte de las EMN japonesas.

Portuguese

Investigamos como vínculos intergovernamentais em níveis subnacionais entre países de origem e destino influenciam a intensidade e localização de fluxos de investimento estrangeiro direto (FDI). Enfocamos um tipo intrigante de vínculo subnacional, a saber, Cidades da Amizade Internacional (Irmãs). Uma cidade irmã é uma forma descentralizada de relacionamento intergovernamental que fornece uma plataforma pela qual uma corporação multinacional (MNC) pode abordar um governo local, e clientes para adquirir informações localizadas e capacidades políticas. Argumentamos que cidades com uma relação de cidade-irmã atraem mais FDI do que outras cidades semelhantes dentro de um país anfitrião. O benefício se estende ao nível nacional, já que MNCs têm níveis mais altos de FDI em países anfitriões com um número maior de cidades irmãs de seu país de origem. Investigamos ainda se o efeito de cidades irmãs na seleção de país de uma MNC é maior quando os governos subnacionais do país anfitrião têm um maior grau de autonomia em relação ao governo nacional e menor quando governos têm um nível mais alto de incerteza política. Usando dados do período 1990-2009, encontramos suporte consistente para nossas ideias testadas em dois níveis de análise: uma análise de amostra combinada em nível de cidade sobre os fluxos de FDI japoneses e uma análise em nível de país sobre a seleção de países de MNCs japonesas.

Chinese

我们调查了本国与东道国之间的国家以下的各级政府间的关系如何影响外国直接投资 (FDI) 流入的强度和位置。我们关注一种有趣的地方关系类型, 即国际友好 (姐妹) 城市。友好城市是一种去中心化的政府间关系形式, 它提供了一个平台, 跨国公司 (MNC) 可以通过该平台与地方政府、客户和顾客取得联系, 以获取本地化的信息和政治能力。我们认为, 具有姐妹城市关系的城市比东道国里的其它类似城市吸引更多的FDI。由于MNC 在东道国的FDI水平较高, 有较多与本国建立的姐妹城市, 因而惠益扩大到国家层面。我们进一步调查, 当东道国地方政府相对于国家政府其自治度较高时, 姐妹城市对MNC的国家选择的影响是否较大, 而当政府的政策不确定性较高时, 姊妹城市的影响是否较小。使用1990至2009年间的数据, 我们发现我们的想法经过两个分析层面上的测试而得到了一致的支持: 对日本FDI流入的城市层面的匹配样本分析, 以及对日本MNC的国家选择的国家层面分析。

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ACKNOWLEDGEMENTS

Research reported in this paper was supported by King Fahd University of Petroleum & Minerals (Small/Basic Research Grant SF201-MGTMKT-665) and by financial assistance from CUHK Business School. We benefitted from comments from Kulwant Singh, Shu Yu, and the reviewers and audience at the Academy of Management Annual Conference 2016 in Anaheim. We are grateful to Yoshihide Sugimoto, Qianqian Luo, and Zhaowei Chen for helping collect data. We thank JIBS editor Arjen van Witteloostuijn and two anonymous reviewers for their thoughtful comments and suggestions.

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  1. Department of Management and Marketing, KFUPM Business School, King Fahd University of Petroleum & Minerals, Dhahran, 31261, Saudi Arabia

    Tianyou Hu

  2. Department of Management, CUHK Business School, The Chinese University of Hong Kong, Shatin, Hong Kong

    Siddharth Natarajan

  3. Department of Strategy and Policy, NUS Business School, National University of Singapore, Mochtar Riady Building, 15 Kent Ridge Drive, Singapore, 119245, Singapore

    Andrew Delios

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Hu, T., Natarajan, S. & Delios, A. Sister cities, cross-national FDI, and the subnational FDI location decision. J Int Bus Stud 52, 1279–1301 (2021). https://doi.org/10.1057/s41267-021-00409-2

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