Institution building in retreat : The effects of co-devolution on MNE-emerging economy relationships

Purpose The purpose of this paper is to describe co-devolutionary processes of multinational enterprise (MNE)/emerging economy institutional relationships utilizing concepts from “old” institutional theory as well as the institutional aspects of socially constructed realities. Design/methodology/approach The authors develop a set of propositions that explore the new concept of a co-devolutionary relationship between MNEs and emerging economy institutions. Guided by prior research, the paper investigates MNE/emerging economy institutional co-devolution at the macro-(MNE home and host countries), meso-(MNE industry/host country regulative and normative institutions) and micro-(MNE and host country institutional actors) levels. Findings MNE/emerging economy institutional co-devolution occurs at the macro-level via negative public communications in the MNE’s home and host countries, at the meso-level via host country corruption and MNE adaptation, and at the micro-level via pressures for individual actors to cognitively “take for granted” emerging economy corruption, leading to MNE divestment and a reduction in new MNE investment. Research limitations/implications By characterizing co-devolutionary processes within MNE/emerging economy institutional relationships, the research augments co-evolutionary theory. It also assists in developing more accurate specification and measurement methods for the organizational co-evolution construct by using institutional theory’s foundational processes to discuss MNE/emerging economy institutional co-devolution. Practical implications The research suggests the use of enhanced regulation, bilateral investment treaties and MNE/local institution partnerships to stabilize MNE/emerging economy institutional relationships, leading to more robust progress in building emerging economy institutions. Originality/value The research posits that using the concepts of institutional theory as a foundation provides useful insights into the “stickiness” of institutional instability and corruption in emerging economies and into the resulting co-devolutionary MNE/emerging economy institutional relationships.