Human Rights Shaming and FDI: Effects of the UN Human Rights Commission and Council

Abstract

Do public condemnations by the United Nations human rights bodies lead to foreign direct investment (FDI) loss for abusive regimes? The Human Rights Commission and later Council (UNHRCC) are internationally legitimized tools where member states shame repressive regimes for human rights violations in public resolutions. We argue that these resolutions can influence foreign investors in two main ways: (1) They signal that a state is an outcast, unable to secure alliances within the UN human rights bodies that protect it from being publicly shamed, with negative consequences for investment attractiveness ('outcast' effect). (2) They signal that a state is one of the most rogue, severe human rights violators because voting members of the UNHRCC may be aware of many human rights violations, but they pass resolutions only in the harshest cases ('bottleneck' effect). Any MNC associated with such a country risks severe reputational damage. Results from a panel data analysis of 165 countries (1977-2013) confirm that UNHRCC condemnations deter FDI. This effect is amplified by media reporting of human rights abuse, and stronger and more robust than a bad human rights record of a state itself. NGO shaming and milder UNHRCC sanctions (which do not reach resolution stage) have less strong effects, although the result on NGO shaming is to be seen with caution due to a reduced sample size.

U.S. Multinationals and Human Rights: A Theoretical and Empirical Assessment of Extractive Versus Nonextractive Sectors

“…Poe et al (2001). 3 This index is a commonly accepted measure for human rights protection and has been used widely in the literature (Vadlamannati et al, 2018;Davenport & Nordas, 2013;Davenport & Armstrong, 2004;Walker & Poe, 2002). The mean of the PTS index during 1999-2015 is 2.68 with a standard deviation of 1.09.…”

“…The 2010 Conflict Minerals provision of the Dodd-Frank Act for U.S. companies, which now have to disclose the use of conflict minerals in their supply chains, has similar goals. Similarly, a crucial finding from the "naming and shaming" literature is that recent developments to hold firms accountable have created pressure on foreign investors to divest from repressive regimes to avoid reputational damage (Barry et al, 2013;Vadlamannati et al, 2018). This issue is also discussed within the business literature, where firms might be seen as political and powerful actors that can step in when states are unable to provide public goods to their citizens, lobby governments for improvements, and drive a "race to the top" (Matten & Crane, 2005;Scherer & Palazzo, 2011;Westermann-Behaylo et al, 2015).…”

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Assessing the Role of Host Country Human Rights Protection on Multinational Enterprises’ Choice of Investment Strategy

“…Furthermore, firms are increasingly held accountable for allying with repressive governments through silent complicity that involves ignoring human rights abuses and indirectly supporting these regimes by generating revenue through tax payments and investments (Clapham & Jerbi, 2002;Wettstein, 2010). Such associations can not only tarnish foreign investors' brands but also lead to consumer boycotts and various forms of disruptive backlash that can similarly undermine revenue streams and pose ongoing operational difficulties for MNEs in those countries (Vadlamannati, Janz & Berntsen, 2018). Preventing civil liabilities in such contexts may involve investing significant resources in enforcing self-regulation and internal human rights commitments.…”