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On the location choices of African multinational enterprises: Do supranational economic institutions matter?

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Abstract

In this article, we examine the roles of supranational economic institutions in the location choices of African multinational enterprises (MNEs). In doing so, we first consider the main effect of supranational economic institutions. We then examine whether and how the strength of national economic institutions moderates the effects of supranational economic institutions. Using data from intra-African investments across five African Regional Economic Communities (RECs), we find empirical evidence suggesting that the economic institutions of RECs promote foreign investments of African MNEs. However, we also find that the effects of these supranational institutions are stronger in host countries with better national institutions, pointing to a disparity in the distribution of gains among member countries. By taking intra-African FDI and RECs as empirical contexts, the study not only contributes to filling a critical gap in our understanding of international business and institutions in Africa but also generates useful policy insights for the African Continental Free Trade Area (AfCFTA), which began operations on January 1, 2021.

Résumé

Dans cet article, nous examinons le rôle des institutions économiques supranationales dans les choix de localisation des entreprises multinationales africaines. Pour ce faire, nous examinons tout d'abord l'effet principal des institutions économiques supranationales. Nous examinons ensuite dans quels cas et comment la solidité des institutions économiques nationales modère les effets des institutions économiques supranationales. En utilisant des données sur les investissements intra-africains dans cinq communautés économiques régionales (CERs) africaines, nous trouvons des preuves empiriques suggérant que les institutions économiques des CERs favorisent les investissements étrangers des entreprises multinationales africaines. Toutefois, nous constatons également que les effets de ces institutions supranationales sont plus importants dans les pays d'accueil dotés de meilleures institutions nationales. Cela indique une disparité dans la répartition des bénéfices entre les pays membres. En prenant l'IDE intra-africain et les CERs comme contextes empiriques, cette étude contribue à combler une lacune importante dans notre compréhension du commerce international et des institutions en Afrique. Elle génère également des pistes politiques utiles pour la Zone de libre-échange continentale africaine (ZLECA), en vigueur depuis le 1er janvier 2021.

Resumen

En este artículo examinamos el papel que juegan las instituciones económicas supranacionales en la decisiones de ubicación de las empresas multinacionales africanas (MNEs), por sus siglas en inglés. De este modo, consideramos primero el principal efecto de las instituciones económicas supranacionales. Luego examinamos porqué y cómo la fuerza de las instituciones económicas nacionales moderan los efectos de las instituciones económicas supranacionales. Mediante el uso de datos de inversiones internas de África, a lo largo de cinco Comunidades Económicas Regionales (RECs), por sus siglas en inglés, hallamos evidencia empírica que sugiere que las instituciones económicas de RECs promueven las inversiones extranjeras de las MNEs africanas. Sin embargo, también encontramos que los efectos de esas instituciones supranacionales son más fuertes en los países anfitriones que tienen mejores instituciones nacionales, lo que señala una desigualdad en la distribución de las ganacias entre los países miembros. Tomando inversiones extranjeras directas FDI, por sus siglas en inglés, así como RECs como contextos empíricos el estudio no sólo contribuye a llenar el vacío crítico en nuestro entendimiento de los negocios internacionales e instituciones en África, sino que también genera aportes útiles de política para el African Continental Free Trade Area (AfCFTA), el cual inició operaciones en enero 1 de 2021.

Resumo

Neste artigo, examinamos os papéis das instituições econômicas supranacionais nas escolhas de localização das empresas multinacionais africanas (MNCs). Ao fazer isso, primeiro consideramos o efeito principal das instituições econômicas supranacionais. Em seguida, examinamos se e como a força das instituições econômicas nacionais modera os efeitos das instituições econômicas supranacionais. Usando dados de investimentos intra-africanos em cinco Comunidades Econômicas Regionais Africanas (CERs), encontramos evidências empíricas que sugerem que as instituições econômicas das CERs promovem investimentos estrangeiros de MNCs africanas. No entanto, também descobrimos que os efeitos dessas instituições supranacionais são mais fortes em países anfitriões com melhores instituições nacionais, apontando para uma disparidade na distribuição de ganhos entre os países membros. Ao usar o IDE intra-africano e as CERs como contextos empíricos, o estudo não apenas contribui para preencher uma lacuna crítica na nossa compreensão dos negócios internacionais e instituições na África, mas também gera ideias úteis de políticas para a Zona de Comércio Livre Continental Africana (AfCFTA para sua sigla em inglês), que iniciou suas operações em 1º de janeiro de 2021.

摘要

在本文中, 我们考察了超国家的经济机构在非洲跨国企业选址中的作用。在这样做的时候, 我们首先考虑超国家经济机构的主要影响。然后, 我们研究了国家的经济制度优势是否以及如何调节超国家经济机构的影响。利用非洲内部在五个非洲区域经济共同体的投资数据, 我们发现了的实证证据表明, 区域经济共同体的经济机构促进了非洲跨国公司的外国投资。然而, 我们也发现, 在拥有更好国家制度的东道国, 这些超国家机构的影响更大, 这表明成员国之间的收益分配存在明显差异。通过将非洲内部对外直接投资与区域经济共同体作为实证背景, 这项研究不仅有助于填补我们对非洲国际商务和制度的理解中的一个重要空白, 同时也为2021年1月1日开始运营的非洲大陆自由贸易区 (AfCFTA) 提供了有益的政策见解。

Zusammenfassung

In diesem Artikel untersuchen wir die Rolle supranationaler Wirtschaftsinstitutionen bei der Standortwahl afrikanischer multinationaler Unternehmen (MNUs). Dabei betrachten wir zunächst den Haupteffekt supranationaler wirtschaftlicher Institutionen. Anschließend untersuchen wir, ob und wie die Stärke nationaler Wirtschaftsinstitutionen die Auswirkungen supranationaler Wirtschaftsinstitutionen beeinflusst. Anhand von Daten über innerafrikanische Investitionen in fünf afrikanischen Regionalen Wirtschaftsgemeinschaften (RECs) finden wir empirische Beweise dafür, dass die wirtschaftlichen Institutionen der RECs Auslandsinvestitionen afrikanischer MNUs fördern. Wir stellen jedoch auch fest, dass die Auswirkungen dieser supranationalen Institutionen in Gastländern mit besseren nationalen Institutionen stärker sind, was auf eine ungleiche Verteilung der Nutzen unter den Mitgliedsländern hindeutet. Indem wir die innerafrikanischen Direktinvestitionen und RECs als empirischen Kontext heranziehen, trägt die Studie nicht nur dazu bei, eine kritische Lücke in unserem Verständnis der internationalen Geschäftstätigkeit und der Institutionen in Afrika zu schließen, sondern liefert auch nützliche politische Erkenntnisse für die Afrikanische Freihandelszone (AfCFTA), die am 1. Januar 2021 angelaufen ist.

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Authors and Affiliations

  1. Management Division, Babson College, 231 Forest Street, Babson Park, MA, 02457-0310, USA

    Yamlaksira S. Getachew

  2. Department of Management, London School of Economics & Political Science, Holborn, London, WC2A 2AE, UK

    Roger Fon

  3. Faculty of Business and Law, Newcastle Business School, Northumbria University, Newcastle, NE1 8ST, UK

    Roger Fon

  4. Ivey Business School, Western University, 1255 Western Road, London, ON, N6G 0N1, Canada

    Elie Chrysostome

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Appendices

APPENDIX A

See Tables A1, A2, A3, A4, A5, A6, A7, A8, A9, A10 and A11.

Table A1 Results of the conditional logistic regressions of investment location choice controlling for sector effects: robustness
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Table A2 Results of the conditional logistic regression of investment location choice using a supranational economic institutions measure including four REC provisions (services, investments, competition, IPR) and a binary measure of supranational economic institutions: robustness
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Table A3 Results of the conditional logistic regression of investment location choice using single indicators of national economic institutions: robustness
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Table A4 Results of the conditional logistic regression of investment location choice using time-variant supranational economic institutions variable: robustness
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Table A5 Results of the conditional logistic regression of investment location choice using EFI measure of national economic institutions: robustness
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Table A6 Results of the conditional logistic regression of investment location choice using GDP per capita as a moderating variable and a measure of host-country’s internal power: robustness
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Table A7 Results of the probit regression of investment location choice
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Table A8 PPML gravity estimations accounting for endogeneity of RECs
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Table A9 Results of the conditional logistic regression of investment location choice excluding South African firms: robustness
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Table A10 Results of the conditional logistic regression of investment location choice with additional control variables: robustness
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Table A11 Results of the conditional logistic regression of investment location choice excluding the bilateral investment treaty variable: robustness
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APPENDIX B

See Tables B1, B2 and B3.

Table B1 Data on the introduction of the REC provisions (year) used to develop the time-variant supranational economic institutions variable
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Table B2 Host-country information of overseas subsidiaries of African firms in the sample
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Table B3 Home-country information of overseas subsidiaries of African firms in the sample
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Getachew, Y.S., Fon, R. & Chrysostome, E. On the location choices of African multinational enterprises: Do supranational economic institutions matter?. J Int Bus Policy 6, 453–490 (2023). https://doi.org/10.1057/s42214-023-00160-5

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