1. Investing Up: FDI and the Cross-Country Diffusion of ISO 14001 Management Systems

2. Research question
How does FDI influence the cross-country diffusion of ISO 14001, the most widely adopted voluntary environmental program in the world?

3. Voluntary programs Important instrument of CSR
Adoption not mandated by the law
Beyond compliance, seeking to create positive social externalities
Sponsored by a variety of actors
Across issue areas and scales

4. Beyond-Compliance

5. Voluntary program research
Emergence (how, where)
Diffusion (facility, firm, country levels)
Efficacy (social, regulatory, economic performance)

6. Theoretical motivation
Debates on economic integration
regulatory races
convergence to a global model
Does FDI lead host country institutions to converge to a world model?
Does FDI replicate home countries’ “varieties of capitalism”?

7. Specifically
How do ISO adoption rates in FDI’s home country influence ISO adoption rates in FDI’s host countries?

8. Example
Japanese ISO adoption levels are 4 times US while the economy is one-third of the US economy. Per GDP dollar, Japan has 12 times ISO registered facilities vs. the US.
In host economies, would Japanese MNEs encourage ISO adoption more than American MNEs?

9. Diffusion Mechanisms
MNEs can require their subsidiaries to adopt ISO 14001
Subsidiaries, in turn, can influence the domestic supply chain
Domestic firms might imitate superior practices of MNEs
Movement of labor and managers from MNEs to domestic firms

10. ISO
Geneva-based, non-governmental body
Over 15,000 standards to date

11. ISO members
National standard bodies

12. How ISO 14001 Works Management system based
Written environmental policy
Senior management approval
Designated manager
Internal audit
Employee training
External audit

13. ISO adoption

14. Key hypotheses Hypothesis 1 (Country-of-origin):
ISO adoption levels will be higher in host economies which receive FDI from home countries that themselves have high levels of ISO adoption

15. Key hypotheses Hypothesis 2 (race-to-the bottom):
More FDI in host economy is associated with lower levels of ISO adoption

16. Key independent variables
Overall FDI = FDI/GDP
Bilateral FDI it: =
∑ISOjt x (FDI ijt / FDIit )2

17. Model FDI International Economy World Society Domestic Economy
# of ISO certifications
World Society
Domestic Economy
Other Controls
Domestic Politics

18. Model FDI International Economy - Bilateral exports - Exports
# of ISO certifications
World Society
Domestic Economy
Other Controls
Domestic Politics

19. Model FDI International Economy
World Society - IGO - INGO - Language - Neighbors
# of ISO certifications
Domestic Economy
Other Controls
Domestic Politics

20. Model FDI International Economy World Society # of ISO certifications
Domestic Economy - GDP (in PPP) - GDP per capita - (GDP per capita)2
Domestic Politics
Other Controls

21. Model FDI International Economy World Society # of ISO certifications
Domestic Economy
Domestic Politics - SO2 - Regulations
Other Controls

22. Model FDI International Economy # of ISO certifications World Society
Domestic Economy
Other Controls - ISO country fixed effects
Domestic Politics

23. Methods DV: # of ISO 14001 certificates per country per year
Negative binomial event count
Serial correlation
Spatial dependencies
Robust standard errors
Country fixed effects
Lagged covariates
N= 686 (98 countries, )

24. Results Full Non-OECD Non-Japan Non-EU Bilateral FDI √ Overall FDI
Exports
Bilateral exports
Language
Neighbor
IGO
INGO
GDP
Per capita GDP
Per capita GDP 2
SO2
Regulations
ISO 9000

25. Conclusions FDI could lead to investing up, not a race to the bottom
FDI might replicate home countries’ “varieties of capitalism” in host economies

26. Policy implications
For host economies, what matters is not “how much FDI” but “from where”
Home countries exercise “soft power” via FDI

27. Leverage globalization?
Globalization creates opportunities for NGOs to leverage MNEs’ supply chains to spread preferred norms?

28. Future work Scope conditions: would “investing up” hold when:
- activists oppose a program
- the program leads to distributional conflicts
Look at disaggregated FDI
Would Chinese or Indian FDI transmit similar norms as British or American FDI?

29. New projects
Look at the role of FDI and trade in the diffusion of human rights, labor rights, and women rights
Institutional foundations of CSR

30. Interpretation H1: Bilateral FDI significant
+/- 1 SD: 23 (median overall = 4; median in 2002 = 38)