When foreign corporations buy rural land in developing countries to extract natural resources, they weaken existing residents’ community ties and exacerbate poverty, according to a new research paper using data from 68 countries.
The paper, which is forthcoming in the Journal of International Business Studies, adds to researchers’ understanding of the downsides of globalized business.
“There’s plenty of evidence that shows that foreign firms can bring into a country innovation and knowledge,” said co-author Kristin Brandl, an international business professor at the University of Victoria in Canada. “However, what we in international business have done mainly is look a lot at these positive aspects.”
“If we only look at one side, then our view is very skewed,” she added.
Brandl wrote the paper alongside Elizabeth Moore of Northeastern University, Camille Meyer of the University of Cape Town and Jonathan Doh of Villanova University.
Most research into the negative effects of foreign corporations’ land purchases in developing countries has revolved around fieldwork and case studies examining individual communities or regions. What makes this paper unique is that it quantifies the issue on a systemic, global scale, according to Brandl.
“We were able to create this more general, quantitative measure which wasn’t very case-based,” she said. “We think this is really neat and novel in a way because that hasn’t really been done before.”
Part of what makes studying rural regions in developing countries so difficult is their reliance on what the researchers called “community informal institutions” — social norms and traditions not formally codified into law that are nonetheless essential parts of local societies and economies.
These informal institutions are combined with regular governmental laws, regulations and policies to form an “institutional ecology,” according to the researchers, who Brandl said relied partially on the ideas of the political economist Elinor Ostrom to help understand the situation.
“Every country, every regional environment has formal institutions like regulations and policies which are written down, codified, documented by the government,” said Brandl. “But then also every country, every region has these informal institutions, informal traditions and norms and certain values that are implicit in activities in the environment.”
Because informal institutions are far harder to measure than, say, gross domestic product, they can be overlooked by both researchers and policymakers, the researchers said.
In order to quantify such systems on a global scale, the team created a “community strength” measure, based on the number of workers solely supporting a family or community and the unemployment rate within each region. The variable is designed to represent informal institutions that are disrupted by outside land purchases.
They also used information from the World Bank and the Land Matrix Initiative, a database tracking often-opaque land acquisitions around the world.
“The Land Matrix Initiative data is very interesting and very new as well,” said Brandl. “It hasn’t been used in our field, international business, very much”
After running a series of tests, the researchers found several significant connections between foreign land acquisitions, the breakdown of community institutions and poverty.
First, rural poverty increases by 5.7% for each standard deviation increase in land purchases — a statistically significant shift. Second, a one standard deviation increase in land acquisitions decreases community strength by 12%, which is also statistically significant. And third, community strength is a significant protector against poverty, with the researchers finding that one standard deviation unit of community strength decreases the percentage of people in impoverished rural areas by 14.6% per country per year.
The bottom line, according to the researchers, is that community strength protects rural communities from poverty — and that outside companies buying up land destroys community strength. This applies whether the community in Ethiopia or in Ecuador.
The paper adds to a growing body of research on the downsides of governments leasing or selling land to multinational corporations. Two University of Alaska, Anchorage researchers found last year that a massive oil boom in their state did not significantly boost wages or employment for Alaskans, arguing that nearly all the economic benefits of the boom went to out-of-state workers.
Brandl said her paper shows that governments should be more considerate of rural constituents when deciding whether to work with international firms seeking natural resources.
“Policymakers really have this responsibility for the entire population, so they also need to consider the rural communities and what foreign firms could do to these communities,” she said.
“The firms need to be taking a responsibility as well,” she added.
Brandl said there is room for further research on the environmental impacts of multinational companies acquiring land. She is also working on a paper exploring the role supranational organizations like the World Health Organization could play in mediating the interests of rural communities and resource-seeking corporations.
The paper, titled “The impact of multinational enterprises on community informal institutions and rural poverty,” is forthcoming in the Journal of International Business Studiesand was made available online Jan. 26. The authors are Kristin Brandl of the University of Victoria, Elizabeth Moore of Northeastern University, Camille Meyer of the University of Cape Town and Jonathan Doh of Villanova University.