U.S. Multinationals and Human Rights: A Theoretical and Empirical Assessment of Extractive Versus Nonextractive Sectors

Abstract

<jats:p> The consequences of foreign direct investment (FDI) for human rights protection are poorly understood. We propose that the impact of FDI varies across industries. In particular, extractive firms in the oil and mining industries go where the resources are located and are bound to such investment, which creates a status quo bias among them when it comes to supporting repressive rulers (“ location-bound effect”). The same is not true for nonextractive multinational corporations (MNCs) in manufacturing or services, which can, in comparison, exit problematic countries more easily. We also propose that strong democratic institutions can alleviate negative impacts of extractive FDI on human rights (“ democratic safeguard effect”). Using U.S. FDI broken up into extractive and nonextractive industries in 157 host countries (1999–2015), we find support for these propositions.<jats:sup>1</jats:sup> Extractive FDI is associated with more human rights abuse, but nonextractive FDI is associated with less abuse, after controlling for other factors, including concerns about endogeneity. We find also that the negative human rights impact of extractive FDI vanishes in countries where democratic institutions are stronger. Our results are robust to a range of alternative estimation techniques. </jats:p>

Human Rights in the Oil and Gas Industry: When Are Policies and Practices Enough to Prevent Abuse?

“…The literature recognizes that human rights abuses are more likely to occur in countries with weak institutional settings (Vadlamannati et al, 2021). Thus, we control for the Average Host Country Risk , which the authors created from the OECD Country Risk Classification.…”

“…The oil and gas industry, a part of the extractive sector, provides an important context for understanding the development of human rights conduct. Firms in this industry are often singled out for societal and human rights concerns due to their global reach, their work in high-risk locations, extensive supply chains, and the significant negative externalities associated with their operations (Berkowitz & Dumez, 2015; Harrison & Sekala, 2015, p. 939; Janz, 2018; Vadlamannati et al, 2021). Oil firms, in particular, have a long history of human rights abuses (e.g., Royal Dutch Shell and the Ogoni people in Nigeria [Chowdhury et al, 2021]), which continue today.…”

“…Second, while management scholarship on BHR is most often philosophical, conceptual, or qualitative in nature (Schrempf-Stirling & Van Buren, 2020), our work makes a contribution to the growing quantitative BHR scholarship, which helps to systematically discern broader trends and patterns. Some of this scholarship relates to the international political economy literature which assesses the impact of foreign direct investment on human rights abuses at the industry level (Janz, 2018; Vadlamannati et al, 2021). Moving from the industry to the firm level, scant quantitative research has explored the relationship between firms’ human rights policies and practices, and the outcomes of those efforts (exceptions are Cole, 2005; Fiaschi & Giulani, 2012).…”

Business and Human Rights: A Configurational View of the Antecedents of Human Rights Infringements by Emerging Market Firms

“…Therefore, firms less visible in the media, are less likely to be reported for HRIs (Mishina et al, 2010;Zyglidopoulos et al, 2012). Second, some industries, such as extractive industries, are by their very nature more likely to generate harmful impacts than others (Du & Vieira, 2012;Vadlamannati et al, 2020). Third, considering that we observed companies from 2003 to 2012, we had to bear in mind how the internet and increased global attention impacted attention to the negative business externalities regarding human rights.…”

Climate Change, Business, and Society: Building Relevance in Time and Space

“…For instance, the trace sheds light on the actions of specific actors—such as the fossil fuel industry—which have contributed the most to the current climate crisis (Heede, 2014). There are myriad examples marking the space-time of business disruptions to the natural environment and local communities, such as the Deepwater Horizon oil spill (Kessler et al, 2019; Vadlamannati et al, 2020). The traces left behind by this disaster (e.g., the huge quantities of crude oil and chemical dispersant on the sea surface and seabed, dead seabirds, fish and mammals, the vast areas of coastline denuded and destroyed) act as remnants, providing a clear link between corporate activity and localized planetary impacts.…”