Foreign Direct Investment to Africa: Is There a Colonial Legacy?
| Verfasser | Glaister, Keith W. |
| Posten | RESEARCH ARTICLE - Report |
1 Introduction
Jones and Khanna (2006, p. 453) appealed for the field of international business to evolve "from the relatively uncontroversial idea that 'history matters' to exploring how it matters" One way of exploring how it matters is to investigate historical ties, which are "historical relations between specific pairs of countries that have been developed intentionally (formal ties) or have evolved naturally over time (informal ties)" (Makino and Tsang 2011, p. 546). Historical ties establish an institutional framework (North 1990) within which relationships between associated countries occur. Makino and Tsang (2011) point out that in prior research identification of key factors affecting FDI flows has overlooked the effects of relational factors that have been historically developed between countries. Accordingly, this paper seeks to "bring history back into international business" (Jones and Khanna 2006) by examining the question: How do the colonial ties between European colonisers and their African colonies influence the flow of FDI between metropole and colony countries? From a theoretical and practical perspective this is an important question. We seek to unpack the 'how' by examining the influence of colonial ties on FDI, exploring the heterogenous effects of colonisers, and examining the consequences of the duration of the colonial period and the length of time since independence on FDI. These elements of the coloniser-colony relationship have not been investigated in prior literature.
In contrast to most other emerging markets, Africa is a suitable context for this study because of the nature and relatively recent experience of colonization of African countries (Ellis et al. 2018). Nunn (2007, p. 158) characterizes Africa's history by two events, the slave trade and colonial rule and asks, "Why do these events, which ended years ago, continue to matter today?" One answer lies in the nature of the institutions imposed by the colonisers that persist today (Acemoglu et al. 2001). Colonial institutions shape current institutions and consequently affect the accountability of the government, democratic competition, property rights protection, prevention of corruption, and rule of law (Mizuno and Okazawa 2009). The long-lasting effects of colonisation, such as, the widespread use of the coloniser's language, similar institutional structures, and business practices (Liou and Rao-Nicholson 2017), can reduce the 'costs of foreignness', and consequently increase the possibilities of investment (Lundan and Jones 2001).
Although the formal institutions present in a developing country may be a legacy of its former coloniser, we argue that a country's colonial history also generates informal institutions that may be hard to overcome by a firm from the former coloniser. Further, we argue that the changes in the nature of FDI to developing countries, for example, from resource seeking to market seeking, will exacerbate the liability of foreignness (LOF) (Zaheer 1995) related to past colonial ties. Understanding this offers a more complete perspective on the nature of the host-home country relationship, and the nature of institutions in this setting.
Institutional legacies are also related to LOF through country-of-origin (COO) effects, where MNEs face an additional difficulty resulting from the different treatment that foreign companies receive from local stakeholders because of their 'foreignness' (Mezias 2002). COO refers to the MNE's home country and represents the background/history of the organization to host country stakeholders. This reflects the perception that countries, like firms, have brand equity (Kim and Chung 1997). This identity can play a significant role in foreign markets location (Moeller et al. 2013). The image of the MNE may be damaged by the past acts of the country-of-origin of the organization. Where the perception of the company is dramatically influenced by the host country this is an added burden of the LOF. Even though an individual company itself may not have 'earned' the adverse reputation, all companies from the same home country may suffer this negative effect. Hence a stigma may be attached to the MNE, its products, brands and employees. In effect country image summarizes consumers' beliefs about product attributes and directly affects their attitude toward the brand (Han 1989). Moeller et al. (2013) argue that COO is the anchor point for the international strategic actions of the MNE and suggest that COO plays an important role is determining whether an MNE has the potential to succeed in a host country environment. Importantly, Moeller et al. (2013) conclude that the management of the MNE should be aware of potential resistance to accept the MNE and its products and must develop a proactive set of strategies to address the negativism of host country stakeholders. Such resistance may be particularly acute for MNEs whose home country is a former coloniser of the host country.
Another important factor lies in recognizing that the colonial experience was not homogeneous, but varied in nature between the European colonisers, with the differential experience ultimately impacting on inward FDI. Moreover, the historical relationship could vary from being favourable to being hostile. The character of the historical relationship is likely to effect economic exchanges between two countries, including FDI (Chowdhury and Maung 2018). We explore these issues in what follows.
Few prior studies have examined historical ties and in particular whether the historical relationship between two nations is important for FDI. Makino and Tsang (2011) examine ties between France and Vietnam and their effect on FDI, Kedia and Bilgili (2015) examine links between Russia and former Soviet Republics to investigate the effect of institutional distance between home and host countries on the percentage of shares acquired in target companies. Chowdhury and Maung (2018) consider how historical ties between home and host countries contribute to the total number of cross-border mergers and acquisitions (CBMAs) from colonies to colonisers. The papers by Makino and Tsang (2011) and Kedia and Bilgili (2015) are narrowly focused on historical ties between two nations, whereas Chowdhury and Maung (2018) consider CBMA data from 37 ex-colonies (including for example, USA, Canada, Australia and ten African countries).
We consider FDI from former colonisers (six countries) to their former African colonies (49 countries). George et al. (2016) point out that scholars in various fields have regularly considered colonial legacies a source of Africa's ongoing difficulties and that the examination of the enduring effects of Africa's institutional legacies is an underexplored area. To the best of our knowledge prior studies of African inward FDI do not specifically refer to colonial ties as a determinant of FDI. We find the expected overall positive effect on inward FDI of prior colonial ties, although this finding varies with the coloniser given that the experience of colonization was heterogeneous. Further, we highlight the potential ambiguity of colonial ties, in the sense of acting both to encourage and to discourage FDI from the coloniser. We report a negative relationship between the period of time a country was a colony and the extent of inward FDI from the coloniser. We also show that following independence the detrimental effect of colonization on FDI from the coloniser eventually dissipates.
The paper is organised as follows. The next section provides a review of the literature structured to include a brief overview of the colonial development of Africa, the delineation of institutional theory which serves as our theoretical lens, and consideration of how the liability of foreignness affects the legitimacy of an MNE in a foreign institutional environment. We then develop the study's hypotheses based on the implications of colonial ties for FDI. We next set out the research methods. Findings are then presented, followed by discussion and conclusion, including limitations and suggestions for future research.
2 Literature Review
2.1 Colonial Development of Africa
The period from the sixteenth to the nineteenth century represents the era in which almost all parts of the world came to be dominated to some degree by the large European powers of Britain, France, the Netherlands, Spain, Austria-Hungary, and Russia (Iammarino and McCann 2013, p. 250). The majority of the commercial activities of these states were dominated by economic and trading relations primarily contained within their individual colonial systems. In effect the leading European countries sought to increase their trade by acquiring colonies and using tariffs and war to prevent other countries from trading with them. Allen (2011) argues that colonies were acquired for both economic and strategic reasons. In the expectation that "they would supply tropical products to the imperial power and be a market for its manufactures, as well as providing places for its citizens to settle and profitable investments for its bourgeoisie. In addition, empires were regarded as civilizing missions that would spread Christianity and raise native culture to the standard of Europe" (Allen 2011, p. 102-103). By the turn of the twentieth century, for instance, the British Empire spanned about one quarter of the globe, resulting in a two-way flow of trade, with Britain importing raw materials from its colonies and exporting finished and semi-finished goods. As Ferguson (2004, p. xxv) notes "The British Empire began as a primarily economic phenomenon, its growth powered by commerce and consumerism." Up to the early twentieth century, many British, French and Dutch commercial enterprises had multiple facilities and operations scattered across all their respective empires as well as across their home countries. Yet up until this period, as noted, the economic...
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