US Multinationals and Human Rights: A Theoretical and Empirical Assessment of Extractive vs. Non-Extractive Sectors

Abstract

The consequences of multinational corporations (MNCs) for human rights protection are poorly understood. We propose that the motives and behaviour of MNCs vary across industries. Extractive firms go where the resources are, which creates a status quo bias among them when it comes to supporting repressive rulers. Moreover, low skills levels, environmental pollution and exploitative motives can fuel tensions which are subsequently suppressed by governments. The same is not true for non-extractive MNCs, which are less controversial and can exit more easily. Using US foreign direct investment (FDI) broken up into extractive and non-extractive in 114 host countries (1999–2009), we find support for these propositions. Extractive FDI is associated with negative effects on rights, but non-extractive FDI is positive after controlling for a host of relevant factors, including endogeneity. Our results are robust to the use of Extreme Bounds Analysis (EBA) and alternative sample sizes.