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

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 14001 adoption rates in FDI’s home country influence ISO 14001 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 14001 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 14001 adoption

14. Key hypotheses • Hypothesis 1 (Country-of-origin): ISO 14001 adoption levels will be higher in host economies which receive FDI from home countries that themselves have high levels of ISO 14001 adoption

15. Key hypotheses • Hypothesis 2 (race-to-the bottom): More FDI in host economy is associated with lower levels of ISO 14001 adoption

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

17. Model FDI International 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 9000- 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, 1996-2002)

24. Results

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)