Foreign Direct Investment and Territorial Economic Development: The Extra-Territorial Dimension

Frameworks for understanding evolution in MNE subsidiary capabilities found in the international business literature typically address a triumvirate of parent company, subsidiary and host territory forces shaping such evolution seen most clearly in the seminal contribution of Birkinshaw and Hood (1998). Yet, the evolution of MNE subsidiary capabilities and the impacts of FDI on home and host territories can hardly be understood without reference to the steadily increasing volume of regulatory activity that resides in the extra-territorial sphere of the international economy (Ruggie, 1993). In this paper we distinguish type-1, type-2 and type-3 channels of state extra-territoriality in connection with the incentivising and regulation of FDI. We go on to illustrate the salience of state extra-territoriality to MNE subsidiary evolution by comparing and contrasting the deployment of these different channels within ethnocentric and geocentric strategies adopted by states. Discussion of this extra-territorial dimension is important to understanding the possibilities for and limits on host institutions efforts to effect territorial economic development through the attraction and development of FDI.