Populism and Multinational Corporation

Project: Research project

Project Details

Description

Liberal democracy is currently facing an unprecedented crisis as populism gains traction worldwide, with populist leaders governing over 25% of nations. Countries like Brazil, Hungary, India, Poland, Turkey, the UK under Boris Johnson, and the US under Trump have all been directly governed by populist leaders. Populist parties, particularly those on the right, have also seen increasing vote shares in recent elections.

While populism is widely recognized as detrimental to the economy, little scholarly attention has been given to the specific risks it poses to multinational corporations (MNCs) and their investments. This proposed study aims to fill this gap by empirically exploring the impact of populist leaders on the MNCs who have investment or supply chain exposure to these countries, and their responses to such risks, utilizing large, proprietary firms, job postings, and work history data from sources like Orbis, Revenpack, and Lightcast etc.

Anecdotal evidence suggests that the threats to MNCs are substantial, with examples such as expropriation attempts and increasing regulation pressure by the Law and Justice (PiS) government of Poland and Viktor Orbán’s Hungary, which illustrate the anti-globalization sentiment and economic nationalism often associated with the rise of right-wing populism. MNCs may employ various strategies to mitigate such risks, by selling shares, spinning off subsidiaries, or completely exiting the country. Apart from the existing investment, bad experiences with populism exposure could also change MNCs' future investment in countries with similar political trends. Each of the MNCs’ responses could have different economic implications for the host countries and firms, as well as for the future of globalization. Upon confirming the positive effect on MNCs’ capital flee, I will further explore the aforementioned channel of increasing economic nationalism and anti-globalization sentiment in the host countries. Additionally, populism may lead to a brain drain of valuable human capital from MNC subsidiaries, resulting in significant costs for firm controls and future human capital investment.

I plan to adopt two identification strategies to alleviate the endogeneity concern, first is a standard difference-in-differences design with extensive parent MNC firm, and subsidiary firm-level controls, and the second is to further limit the comparison among a subsample of close-call election to capture the effect of surprising wins of populists. Through these endeavors, this study contributes to burgeoning economic research on the causes and consequences of populism and the increasing political and economic uncertainty faced by the MNCs.
StatusNot started
Effective start/end date1/01/2531/12/27

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