Through OFDI, MNEs are often exposed to different standards and practices in host countries, including managerial, accounting, quality, labour and environmental standards. A positive home-country effect can occur when standards and practices are more developed in the host than in the home country, and are adopted by the MNE overseas and brought back to the home country (UNESCAP 2020). Over time, this could result in a broader adoption and acceptance of these improved standards and practices in the home country.
SDG 12.7 encourages the adoption of sustainable practices by companies and multinational enterprises, and OFDI could be a vehicle through which this can be promoted.
Key insights
- OFDI might lead to the adoption of improved standards and practices in home countries as MNEs adopt them overseas and then repatriate them.
- Government policies and measures should promote the adoption of high-quality standards and practices through OFDI.
Interactions
B6) Investment destination: As advanced economies tend to have higher labour, environmental, managerial, accounting and other standards and practices, OFDI in such countries could lead to improvements of such standards and practices in the investing MNE and, ultimately, the home country.
B8) Transmission channels: Competition effects can induce improvements in the operations of the multinationals in their home economy, which could include improved standards and practices.
Available Research Findings
The notion that firms adopt improved standards and practices through international investment and associated international business operations, and transfer these back to the home country, is still a primarily theoretical proposition. While some anecdotal accounts may exist, empirical evidence for this still needs to be developed.