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Subnational institutional disadvantages and capital escape in EMEs: the dark side of the strategy tripod framework

Yi She,Feng Ding,Xionghe Qin

Published 2025 in Critical Perspectives on International Business

ABSTRACT

Purpose In international business (IB) and institutional research, some scholars view outward foreign direct investment (OFDI) as a capital escape phenomenon arising from the misalignment between enterprise needs and the home country’s institutional environment. While prior studies have examined the internal driving forces, institutional environment and government support of emerging market economies’ (EMEs) OFDI activities in isolation, the purpose of this paper is to focus on the disadvantages stemming from subnational institutions, resources and industries – referred to as the dark side of the strategy tripod framework. Design/methodology/approach This study analyzes OFDI data from 17 industries across 31 provinces and regions in China from 2004 to 2020. This study examines the impact of subnational institutional disadvantages (coercive, normative and mimetic isomorphic pressures) and competitive disadvantages on OFDI, along with their interactions from a dark side perspective, and explores their spatial spillover effects. Findings The findings of this study reveal that, first, competitive disadvantages significantly positively affect enterprises’ OFDI behavior in subnational regions. Second, coercive and normative isomorphic pressure in subnational regions promote OFDI behavior and significantly positively moderate the impact of competitive disadvantages on OFDI. However, mimetic isomorphic pressure, while promoting corporate OFDI behavior, negatively moderates the impact of competitive disadvantages on OFDI, potentially because of the “substitution effect” of OFDI. Finally, the significant spatial spillover effect of OFDI in adjacent subnational regions indicates a high likelihood of convergences in OFDI activities. Additionally, there is a spatial spillover effect of institutional disadvantages on OFDI in subnational regions. Originality/value This research contributes to the IB and institutional literature in two important ways. First, this paper explores the dark side perspective of the strategic tripod framework, deepening the understanding of subnational disadvantages impacting EMEs’ OFDI activities, especially the direct and indirect effects of subnational institutional disadvantages. Second, this study enriches institutional theoretical research by systematically exploring how subnational institutional disadvantages affect enterprises’ OFDI behavior and its spatial spillover effects.

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