Using Legal Institutionalism in the Study of International Investment: Suggestions from the Expansion of Brazilian Multinational Corporations

Abstract

This paper suggests that studies of FDI flows demand an examination of how multinational firms achieve legal status as corporations instead of how they use global governance and international regulation. Some sources have been investigating the impact of institutions in FDI flows, especially international business (IB) and international economic law (IEL)literatures. However,both of these literatures lack strong findings. Studies in IEL overemphasize the impact of bilateral investment treaties and investment arbitration to explain FDI, and rely on normative legal theories unsuitable to investigate causal links between legal institutions and FDI flows. In contrast, IB studies rely on methodologies suitable to find causality, but overemphasize the flow of FDI from developed to developing countries and face harsh criticism due to reliability problems. I suggest at least three central variables to assess how Brazilian firms have been achieving legal status as multinational corporations almost unexplored to date. These are: the approval of cross-border deals by the Brazilian antitrust authority;the financial support from the Brazilian Development Bank to outward FDI;and the subsidization of FDI in science and technology parks in Brazil.Investigating the impact of such variables onFDI outward Brazil demands a vision of law inspired in social science approaches to empirical research. Legal institutionalism approach inspires such methodology, when suggesting that legal institutions are necessary conditions to constitute markets,and contrasting the role of the rule of law and the private ordering.Therefore, corporations may be relying on the Brazilian rule of law to grant them legal status internationally, which provides them with ability to enforce cross-border agreements unconceivable before the 2000s. In contrast,another hypothesis is thatBrazilian multinational corporations are actually enforcing a private ordering system to keep dominant positions in their businesses and to create international oligopolies and/or monopolies.