Spanning the Institutional Abyss: The Intergovernmental Network and the Governance of Foreign Direct Investment

Abstract

Global economic transactions such as foreign direct investment (FDI) must extend over an institutional abyss between the jurisdiction, and therefore protection, of the states involved. Intergovernmental organizations (IGOs) represent an important attempt to span this abyss. The authors use a network approach to demonstrate that the connections between two countries, through joint membership in the same IGOs, are associated with a large positive influence on the FDI that flows between them. Moreover, they show that this effect occurs not only in the case of connections through economic IGOs but also through those with social and cultural mandates. This demonstrates that relational governance is important and feasible in the global context, even for the most risky transactions. The authors also examine the interdependence between the IGO network and the domestic institutions of states. Social and cultural IGO connections do more and economic IGO connections less to increase FDI when the target country is more democratic.