Sonal S. Pandya

French roast: : Consumer response to international conflict-evidence from supermarket scanner data

Abstract Do consumers boycott in response to international conflict? We show that during the 2003 U.S.–France dispute over the Iraq War, the market share of French-sounding, U.S. supermarket brands declined. The dispute was a negative shock to U.S. consumers’ associations with France. French-sounding brands, which consumers perceive to be French imports but are not, allow us to isolate the dispute’s effect on economic behavior, as these brands’ only link to France is through consumers’ associations. Our estimates, derived from a nationwide sample of weekly supermarket sales for over 8,000 brands, are robust to a variety of alternate explanations. We also show that supermarkets with a higher proportion of customers who are U.S. citizens (i.e., who more strongly identify with the U.S. national identity) exhibited sharper boycotts.

Ethnocentrism Reduces Foreign Direct Investment

The tension between global economic integration and ethnocentrism is a growing political force across industrialized countries. Whereas extant research emphasizes ethnocentrism’s influence on individual attitudes, we show that ethnocentrism has direct economic costs. We exploit strong public support for greenfield foreign direct investment (FDI) to isolate ethnocentrism’s costs. Our analysis of US state greenfield FDI flows during 2004–12 holds constant country-level factors that correlate with both ethnocentrism and propensity to receive FDI. A 1 standard deviation increase in state ethnocentrism, as manifest in anti-immigrant sentiment, corresponds to approximately

Risky Business: Institutions vs. Social Networks in FDI

229 million less greenfield FDI and 180 fewer jobs per state-year on average. Findings are robust to controls for state economic conditions, transactions costs, existing FDI stock, demographics, and state partisanship. These findings clarify the economic cost of ethnocentrism-based political strategies and suggest that mass political sentiment constrains global economic integration.

Labor Markets and the Demand for Foreign Direct Investment

Political economy accounts of economic integration strongly emphasize the importance of legal contract enforcement. We challenge extant research by showing that relational contracting, relationship-based contract enforcement, is more efficient for high-risk, human capital-intensive activities for which the costs of writing legally enforceable contracts are prohibitively high. We disaggregate foreign direct investment (FDI) into two distinct varieties: mergers and acquisitions (M&A) and venture capital (VC). We propose that VC flows are less sensitive to host institutions but correlate strongly with skilled migrant networks that monitor compliance and impose reputational costs. Our empirical analysis of dyadic VC and M&A flows covers over 100 countries during the 1980-2009 period. We control for other mechanisms through which migrant networks facilitate FDI and verify our results with industry-level analyses. These findings suggest that relational contracting facilitates global integration of dynamic, knowledge-intensive industries that are crucial to innovation, growth, and economic development.