International Business Review 30 (2021) 101753

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International Business Review

journal homepage: www.elsevier.com/locate/ibusrev

Resource curse impacts on the co-evolution of emerging economy

institutions and firm internationalization
Charles Funk a, *, Len J. Treviño b, Juliet Oriaifo c
a
Department of Management and Marketing, College of Business and Management, Northeastern Illinois University, 5500 North Saint Louis Avenue, Chicago, IL, 60625,
United States
b
Department of Management Programs, College of Business, Florida Atlantic University, 777 Glades Road, Fleming Hall (FL-24), Boca Raton, FL, 33431, United States
c
College of Business and Economics, North Carolina A&T State University, 1601 East Market Street, Greensboro, NC, 27411, United States

A R T I C L E I N F O A B S T R A C T

Keywords: We investigate natural resource “curse” impacts on co-evolutionary relationships between emerging economy
Resource curse institutions and firm internationalization. We discuss how these relationships challenge and extend IB institu­
Institutional theory tional research using three predominant resource curse characteristics (boom and bust cycles with related public
Organizational co-evolution
discourse and “Dutch Disease” with associated manufacturing sector investment crowd-out). These character­
Emerging economies
State-owned enterprises
istics alter regulative, normative and cognitive institutional impacts on state- and privately-owned firm inter­
nationalization during an emerging economy’s resource curse. We develop propositions describing these
processes using oil and gas, manufacturing and service sector examples in several emerging economies. We
discuss our theoretical contributions to the resource curse and international business literatures and outline
future research directions.

1. Introduction literature in the international business (IB) domain is largely limited to

Over the past two decades, economic development scholars have
explored the “resource curse” phenomenon, or the tendency for natural
resource-abundant countries to underperform on economic and insti­
tutional development indicators (Auty, 1993, Frankel, 2010). This focus
is justified, as 69 percent of people in extreme poverty live in countries
fitting the definition of resource-cursed and 80 percent of historically
resource-driven economies have per capita incomes below global aver­
ages (McKinsey Global Institute, 2013). The human cost of this phe­
nomenon has been further explored in sociology (Watts, 2001),
anthropology (Gilberthorpe & Rajak, 2017) and other social science
literatures, revealing resource curse effects on human agency and
community relations in developing countries (Papyrakis, 2017). These
effects include exacerbating poverty in communities near resource
extraction areas (Hilson, 2012) and stimulating gender inequality and
social fragmentation (Macintyre, 2003). Additionally, state/corporate
enterprise tensions with indigenous populations in mineral-rich coun­
tries have resulted in social dislocation and conflict (Watts, 2001).
Although understanding the resource curse’s impact on economic
growth and development in resource-abundant economies is highly
developed (See Papyrakis, 2017 for a review), the resource curse
macroeconomic (country-level) research (see Dieleman & Sachs, 2008;
Funk & Treviño, 2017; Narula, 2018; Shapiro, Hobdari, & Oh, 2018).
This is unfortunate, as the curse has damaged economic and social in­
stitutions in key resource-driven emerging economies (e.g., Brazil and
Venezuela) and the internationalization of their privately-owned (POEs)
and state-owned enterprises (SOEs) (Buckley, Doh, & Benischke, 2017;
Grøgaard, Rygh, & Benito, 2019; Lyons & Kiernan, 2015). The curse’s
negative human welfare impacts and substantial IB research interest in
emerging economy firm internationalization (George, Schillebeeckx, &
Liak, 2015; Grøgaard et al., 2019) underscores the importance of
explicating the curse’s impact on the co-evolution of emerging economy
institutions and their firms’ ability to internationalize their operations.
The oil and gas industry remains very important for SOE interna­
tionalization. It ranks among the top five global industries with SOE
shares and it includes a growing trend of previously domestic emerging
economy SOEs seeking natural resource access in foreign markets
(Cannizzaro & Weiner, 2018; Grøgaard et al., 2019). These SOEs and
their home countries are particularly vulnerable to resource curses,
leading Ross (2012): 1) to state that “…petroleum-which accounts for
more than 90 percent of the world’s minerals trade-produces the largest
problems for the greatest number of countries. The resource curse is

* Corresponding author.
E-mail addresses: c-funk@neiu.edu (C. Funk), trevinol@fau.edu (L.J. Treviño), joosuji@ncat.edu (J. Oriaifo).

https://doi.org/10.1016/j.ibusrev.2020.101753
Received 25 February 2019; Received in revised form 20 August 2020; Accepted 24 September 2020
Available online 23 October 2020
0969-5931/© 2020 Elsevier Ltd. All rights reserved.
C. Funk et al.
overwhelmingly an oil curse.”
Emerging economy governmental institutions usually control access
to oil and gas reserves via their SOEs. Indeed, majority-owned SOEs
produce oil and gas in 16 of the 23 emerging economies listed in the
International Monetary Fund’s (IMF) 2015 World Economic Outlook
(IMF, 2015). This represents approximately three-quarters of emerging
economy production and one-third of world production (Natural
Resource Governance Institute, 2019; U.S. Energy Information Data­
base, 2019), thus limiting the role of foreign MNEs in such production.
Recent research finds that oil-abundant countries tend to attract less
FDI, such that a one percent increase in the ratio of oil rents to country
GDP reduces greenfield projects by approximately three percent (Car­
ril-Caccia, Milgram-Baleix, & Paniagua, 2019). This is also true for our
study’s emerging economy examples, where SOEs provide over 80 % of
oil and gas production. Therefore, emerging economy SOEs are
becoming increasingly multinational (Shapiro et al., 2018), seeking
capability-enhancing opportunities abroad (e.g., technology transfer,
know-how, better consumer products and enhanced size/reputation
internationally) that home market POEs and SOEs can use to foster
broad economic and social development, innovation and additional firm
internationalization (Benito, Rygh, & Lunnan, 2016; Luo & Tung, 2007).
Accordingly, IB research investigating resource curse impacts on
co-evolving relationships between emerging economy institutions and
their internationalizing SOEs could help develop robust and consistent
policies for achieving those outcomes.
The IB field has produced significant work covering home market
institutional impacts on emerging economy MNE competitiveness in
domestic and other emerging and developed economies (Geleilate,
Magnusson, Parente, & Alvarado-Vargas, 2016; Rodrigues & Dieleman,
2018; Treviño, Thomas, & Cullen, 2008; Wright, Filatotchev, Hoskisson,
& Peng, 2005). Regarding co-evolution, research has examined
emerging economy institutional relationships with SOE internationali­
zation (Cui & Jiang, 2012; Clegg, Voss, & Tardios, 2018; Estrin, Meyer,
Nielsen, & Nielsen, 2016; Finchelstein, 2017; Grøgaard et al., 2019;
Liang, Ren, & Sun, 2015; Meyer, Ding, Li, & Zhang, 2014; Rodrigues &
Dieleman, 2018; Wang, Hong, Kafouros, & Wright, 2012). However,
there is a dearth of research that explains resource curse effects on
co-evolving relationships between emerging economy institutions, oil
and gas SOE internationalization, and the internationalization of POEs
and SOEs in non-extractive industries.
The lack of micro- (firm) and meso- (industry) level resource curse
research leaves unaddressed three predominant characteristics of
resource-cursed emerging economies that can profoundly affect re­
lationships between institutions and firm internationalization. The first
two characteristics are commodity price volatility-driven “boom and
bust” economic cycles (notably in “extractive” industries, such as oil and
gas) for resource-driven emerging economies. If government policy re­
sponses to these cycles resemble those of non-cursed emerging econo­
mies, curse severity and resulting public discourse can be amplified,
debilitating firm internationalization efforts therein. Thus, resource-
driven emerging economies must carefully consider these impacts
when developing fair and efficient allocation policies for large “wind­
fall” rents across the curse’s ‘boom’ and ‘bust’ stages. Additionally, as
natural resources are considered a ‘public good’ owned by the emerging
economy’s citizens, government mishandling of rents during these two
stages can heighten negative public discourse and actions. Internation­
alizing SOEs must also consider their public reputation and discourse
stemming from business activity and from social/managerial ties with
potentially corrupt emerging economy institutions. Public involvement
can range from heightened media monitoring and discourse concerning
windfall collection and allocation to violent actions by groups
perceiving unfair windfall distribution or by others that are simply
opportunistic, unlawful or corrupt.
Third, the resource-cursed emerging economy’s oil obsession can
result in “Dutch Disease” as local currency inflation and institutional
corruption increase outward FDI (OFDI) ‘crowding-out’ in POEs and
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International Business Review 30 (2021) 101753
SOEs from non-oil-related manufacturing and/or service industries
(Krugman, 1987; Murshed, 2004). This environment can also encourage
negative discourse from workers in these industries.
To address these unanswered questions and build on the growing
interest in the resource curse and emerging economy POE/SOE inter­
nationalization activities (George et al., 2015; Grøgaard et al., 2019) our
research objective is to explain how the three resource curse charac­
teristics affect co-evolutionary relationships between resource-cursed
emerging economy institutions and firm internationalization. We focus
on the natural resource and tradable (other manufacturing and tradable
service) emerging economy sectors because they comprise the most
likely sectors from which emerging economy firms internationalize. We
conceptualize our arguments using oil and gas industry examples
because the resource curse literature strongly emphasizes extractive
natural resources and because significant emerging economy firm
internationalization impacts come from oil and gas SOEs.
Our research extends institutional co-evolution literature in
emerging economies by theorizing that the three resource curse effects
alter emerging economy co-evolutionary relationships between firm
internationalization and institutions. This notion has received periph­
eral attention in IB literature, as institutional theory suggests that home
country institutions are important in shaping firms’ strategic decisions
(DiMaggio & Powell, 1983; Kostova, Roth, & Dacin, 2008; Murtha &
Lenway, 1994), including international activities and performance
(Buchanan & Marques, 2018; He & Cui, 2012). We also build on Treviño
et al.’s (2008) work that conceives institutionalization as a process that
can enhance legitimacy through Scott’s (1995) regulative, normative
and cognitive institutional pillars. Finally, our propositions evaluate and
extend IB, economic and sociological ideas by examining the relation­
ship between emerging economy institutional quality and the resource
curse (Cuervo-Cazurra, Ganitsky, Luo, & Mezias, 2016; Papyrakis,
2017). These effects are unexplored concerning the institutional pro­
cesses and country-specific mechanisms of co-evolution of firm inter­
nationalization and institutions in resource-cursed environments.
Below we review the resource curse literature, its human develop­
ment policy implications in emerging economies, and the institutional
impacts of resource curse-related boom/bust cycles, windfall rents and
Dutch Disease (e.g., manufacturing crowd-out). We then discuss insti­
tutional co-evolution research, focusing on emerging economy multi­
national enterprises (EMNEs) and their home country institutions.
Following, we consider these effects via work on the co-evolution of
emerging economy institutions and SOE internationalization that in­
corporates Scott’s (1995) regulative, normative and cognitive institu­
tional pillars. Our propositions integrate this work to explore how the
three resource curse characteristics affect co-evolutionary outcomes for
emerging economy firm internationalization, given the normative,
regulative and cognitive processes underpinning each institutional
pillar. Finally, we describe our work’s contributions, limitations and
future research directions.
2. Literature review
2.1. Economic, institutional and social development impacts of the
resource curse
Auty (1993) coined the term “resource curse” to explain why
resource-rich economies often underperform non-resource based coun­
tries. Most scholars agree that extractive (e.g., gold, oil, diamonds)
rather than diffuse (e.g., agriculture) resources drive most resource
curses (Bulte, Damania, & Deacon, 2005). While natural resource dis­
coveries would seemingly benefit emerging economies, the associated
financial “windfalls” are often accompanied by government misman­
agement, embezzlement, foreign corporate opportunism, crowding-out
of investment in and high prices for other goods and services. Severe
economic downturns can ensue when global commodity price volatility
turns the resource ‘boom’ into a ‘bust.’ At their worst, resource curses
C. Funk et al.
leave nations with conflict, corruption, poverty and environmental
problems (Mittelman, 2017).
Most resource curse research is in economics, with early studies
addressing mineral boom crowding-out effects on a country’s economic
diversification and trade openness. “Dutch Disease” research, for
example, revealed how price changes following mineral discoveries can
lead to inflation and shift factors of production toward natural re­
sources. These effects tend to reduce exports and decrease non-resource-
related industry competitiveness (Corden & Neary, 1982). Notably,
government efforts to neutralize these impacts with sovereign wealth
funds have mainly been effective in open societies with strong fiscal
institutions and an independent media (Frynas, 2017). In fact, recent
IMF testing found that these “special fiscal institutions” do not signifi­
cantly affect government spending growth during oil boom periods or
the correlation between such spending and oil revenues (Ossowski,
Villafuerte, Medas, & Thomas, 2008). Other studies demonstrated a
negative relationship between mineral resource abundance and
long-term economic growth, and crowding-out effects from negative
links between mineral resources and trade openness, physical capital
investments, bureaucratic efficiency and inflation (Papyrakis, 2017).
Finally, macroeconomic studies relate mineral resource abundance to
debt overhang (e.g., using reserves as international debt collateral-see
Manzano & Rigobon, 2001) and international commodity price vola­
tility, thus causing macroeconomic fluctuations and foreign investment
uncertainty (Van Der Ploeg & Poelhekke, 2009).
The resource curse literature also discusses the negative human
development and institutional impacts that governments of mineral-rich
nations perpetuate when lacking policies to protect non-mineral related
industries (Auty, 1993). Mineral resources can weaken pro-development
institutions by encouraging rent-seeking and corruption, undermining
democracy (e.g., enabling authoritarian regimes to remain in power via
oppression or income redistribution), encouraging violent conflict, and
diminishing human development (e.g. education-related) and sustain­
ability indicators (Bulte et al., 2005; Papyrakis, 2017; Ross, 2001).
Alternatively, recent studies increasingly consider how “good” in­
stitutions can turn a curse into a ‘blessing’ by supporting secure property
rights and low corruption, encouraging equitable accrued rent distri­
bution, improving resource windfall management and stimulating eco­
nomic diversification and investment (El Anshasy & Katsaiti, 2013;
Ossowski et al., 2008; Sarmidi, Law, & Jafari, 2014). Finally, foreign
multinationals and even small local operators performing resource
extraction in developing countries can exacerbate resource curses via
environmental damage, social disruption and reduced positive spillovers
(Gilberthorpe & Banks, 2012; Hilson & Laing, 2017).
2.2. Institutional co-evolution in emerging economies
Co-evolutionary theory has been used to explain the impact of
environmental selection and managerial adaptation in organization-
environment relationships (Baum & Singh, 1994; Lewin & Volberda,
1999). McKelvey (2002) delineated five necessary and sufficient con­
ditions for organizational co-evolution to occur: 1) the existence of
‘heterogeneous agents’, such as firms and government institutional ac­
tors; 2) firm capabilities for adaptation and learning; 3) firm capabilities
for interaction and mutual influence; 4) the presence of a higher-level
constraint, the adaptation to which motivates the co-evolutionary pro­
cess; and 5) the presence of an initiating event. Our work views resource
curse stages as initiating events that impact how emerging economy
institutions and emerging economy firm internationalization co-evolves.
Co-evolutionary concepts can also describe how MNE-institutional
relationships result in shared social construction of home country
institutional environments (Cantwell, Dunning, & Lundan, 2010; Kos­
tova et al., 2008). While a country’s institutional environments pro­
foundly affect MNE structures and technologies, MNEs contribute to
generating new ‘rules of the game’ (North, 1990) by influencing those
same institutions. Within this framework, the organization of
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International Business Review 30 (2021) 101753
institutions into regulative (institutions that guide behavior by moni­
toring and enforcing laws and regulations), normative (institutions that
guide behavior via social, professional and organizational obligations)
and cognitive (institutions that guide behavior with “taken-for-granted”
rules and meanings that limit beliefs and actions) pillars provide addi­
tional clarity and suggest how MNEs and home country institutional
processes might co-evolve (Scott, 1995; Treviño et al., 2008).
2.3. Emerging economy institutions and EMNE internationalization
The co-evolution of relationships between emerging economy in­
stitutions and their EMNEs can create both advantages and disadvantages
when EMNEs expand to other emerging and/or developed economies.
For example, many EMNEs become accustomed to home country insti­
tutional contexts with limited capital markets, missing institutions, poor
regulatory climates, rigid labor markets, and high corruption. When
internationalizing, EMNES adapt to these constraints using non-market
resources (e.g. networks, business group affiliations and state interven­
tionism) and developing more flexible management styles (Cuervo-Ca­
zurra et al., 2016; Gaur, Kumar, & Singh, 2014). These co-evolutionary
capabilities can lower EMNE transaction costs and confer a transferable
competitive advantage when entering other emerging economies with
similarly weak institutions (Wright et al., 2005).
For developed economy competitiveness, however, home countries
without robust and innovative infrastructures (e.g., educational, R&D
investment/tax and legal) can restrict their EMNEs’ technology and
innovation capabilities versus rival MNEs (Cuervo-Cazurra et al., 2016;
Luo & Tung, 2007). For example, an EMNE’s co-evolutionary response
of using business groups to overcome the lack of effective home country
legal institutions could hinder developed economy operations, where
intellectual property laws may restrict firm cooperation/collusion.
EMNEs may also struggle to meet strict governance requirements for
transparency, ownership, and board functioning that are non-existent
domestically (Wright et al., 2005).
Intrusive home governments might also assert control over EMNEs’
developed market activities. Rodrigues & Dieleman’s (2018) Brazilian
extractive sector study found that state hybrid EMNEs may accelerate
escape internationalization (Witt & Lewin, 2007) during industry boom
periods to counter governmental attempts to reduce their autonomy.
Conversely, these firms may be forced to pursue ‘hesitant de-in­
ternationalization’ during bust periods, curtailing international opera­
tions in favor of domestic priorities.
Despite these challenges, EMNEs have successfully pursued co-
evolving relationships with developed economies by reverse-
innovating domestic products for developed economy consumers
(Govindarajan & Ramamurti, 2011), establishing global supply chain
partnerships with developed country MNEs (Luo & Tung, 2007) and/or
acquiring technologically sophisticated developed economy firms to
absorb tacit knowledge (Witt & Lewin, 2007).
Even institutional reforms at home may not always translate to
performance improvements abroad, as EMNEs may incur restructuring
costs when incorporating such reforms (Hoskisson, Johnson, Tihanyi, &
White, 2005). Geleilate et al. (2016) found that enhanced domestic
capital markets and property rights enforcement did not significantly
improve EMNE international performance. Likewise, improved home
labor market flexibility impaired EMNEs’ multinationality-performance
relationship, perhaps due to increased competition for talent and diffi­
culties in transferring human resource knowledge abroad. Improved
home corruption controls can also reduce an EMNE’s competitive
advantage when facing corruption in other emerging economies
(Cuervo-Cazurra & Genc, 2008).
2.4. Emerging economy institutions and SOE internationalization
Internationalizing SOEs face unique home and host country pres­
sures and management objectives when compared to POEs
C. Funk et al.
(Cuervo-Cazurra, Inkpen, Musacchio, & Ramaswamy, 2014; George
et al., 2015; Grøgaard et al., 2019). Institutional co-evolution cogently
explains this literature, as emerging economy SOEs must respond to
regulative, normative and cognitive institutional legitimacy pressures
from both their home and host countries (DiMaggio & Powell, 1991).
Regarding home country regulatory institutions, SOEs must conform to
state-created laws and rules regarding their investment and activities
abroad. Normative institutional legitimacy at home may mean fulfilling
obligations to home government political ideologies or strategies, as
these institutions may define and regulate “appropriate” actions for
societal members (Rodrigues & Dieleman, 2018; Scott, 1995; Treviño
et al., 2008). Cognitive institutional legitimacy at home may mean
successfully navigating the shared perceptions and expectations of
various home constituencies (in government and in the general public)
concerning the SOE’s internationalization objectives. These could
include projecting foreign political influence/power, obtaining needed
resources, or expanding markets to enhance domestic wealth (Cuer­
vo-Cazurra et al., 2014; Treviño et al., 2008; Wang et al., 2012).
For the host country, complying with local rules and regulations is
important to maintain regulative institutional legitimacy. Maintaining
normative institutional legitimacy, however, may be more difficult. In
particular, advanced economy host countries may be more culturally
distant and their operational norms may involve adhering to both local
rules and those of non-governmental organizations, such as the World
Bank and the IMF. Cognitively, host country governments and public
institutions may see foreign SOEs as attempting to exercise economic
control over and possibly threaten the security interests of the host
country (Cuervo-Cazurra et al., 2014; Meyer et al., 2014).
SOEs can co-evolve with these institutions through various adaptive
actions. For example, SOEs could pursue joint ownership with host
country firms if strong regulatory restrictions on inward and outward
FDI exist in home and host countries. Such structures can mitigate
institutional costs at home and attain institutional legitimacy abroad
(Cui & Jiang, 2012).
Normatively, economic and institutional pressures can force SOEs to
alter their internationalization strategies in response to home country
obligations. For example, Brazilian mining firm Vale de-
internationalized in response to declining industry performance,
increasing nationalist political ideology at home and pressure to support
domestic governmental priorities (Liang et al., 2015; Rodrigues &
Dieleman, 2018). Alternatively, emerging economy SOE responses to
host country normative pressures may range from isomorphic, via
conforming to local and international standards-setting organizations
(Cuervo-Cazurra, 2015), to strategic, via OFDI into weak institutional
environments that the SOE is better-equipped to handle (Clegg et al.,
2018; Cuervo-Cazurra et al., 2014).
Cognitively, co-evolutionary actions by emerging economy SOEs
attempt to balance home country beliefs that internationalization will
create economic and national/political benefits with host country con­
cerns regarding economic and political exploitation (Grøgaard et al.,
2019; Meyer et al., 2014). For example, resource-seeking SOEs may opt
for acquisition entry modes to enhance their home country’s stock of
valuable technology and knowledge (Clegg et al., 2018). However, host
country stakeholders may view this action as threatening national
competitiveness and security and therefore respond with regulation and
restrictions (Sauvant, 2010). A co-evolutionary response to such pres­
sures might be a partial acquisition that allows the SOE to maintain a
low profile, avoid conflicts with local stakeholders, and leverage the
legitimacy of a local co-owner (Cui & Jiang, 2012; Meyer et al., 2014).
SOEs can experience faster internationalization and greater diversi­
fication when their home countries undertake more direct (e.g., sub­
sidies, regulatory support, long-term loans) vs. indirect (e.g., market and
private investor-related) support (Finchelstein, 2017). Concomitantly,
high levels of state ownership and institutional instability at home tend
to reduce the SOE’s propensity for developed market expansion. When
normative, regulative and corporate governance institutions are weak,
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International Business Review 30 (2021) 101753
SOE behavior will favor domestic rent-seeking strategies because of the
controlling presence of political/government employees within the
SOE’s management structure. When these institutional controls are
strong, the discretion of independent, professional managers will be
more in evidence, and SOEs will tend to act similarly to POEs by
exploiting their firm- and country-specific advantages through interna­
tionalization (Estrin et al., 2016).
3. Propositions
We utilize Scott’s (1995) institutional pillars as the theoretical
foundation for our propositions. These pillars describe a country’s
institutional profile and provide a framework for human interaction via
formal and informal behavioral constraints. These implicit “rules of the
game” in a country’s institutional mosaic affect firm transaction costs in
the country and incentivize or dis-incentivize the range of strategies
available (North, 1990; Treviño et al., 2008). Accordingly, we consider
how these institutions co-evolve with firm internationalization strate­
gies in resource-cursed emerging economy environments (Cuervo-Ca­
zurra & Genc, 2008; Luo & Wang, 2012).
Utilizing Treviño et al. (2008), we characterize the institutional
“rules of the game” (North, 1990) as specific normative, regulative and
cognitive institutional processes that co-evolve with firm internation­
alization initiatives in resource-cursed emerging economies. All three of
a nation’s institutional pillars can influence outward FDI through these
processes, sequentially or simultaneously, though not necessarily
equally. We use the resource curse and emerging economy interna­
tionalization literatures (Cuervo-Cazurra et al., 2016; Frankel, 2010;
Papyrakis, 2017) to consider how institutional process quality in­
fluences curse-related impacts on co-evolutionary institution/firm
internationalization relationships. We define institutional process
quality as the extent to which normative, regulative and cognitive
institutional policies and actions supporting co-evolution with firm
internationalization can attenuate or eliminate the resource curse’s
negative impacts within a nation. For example, economics research
supports industry sector diversification within a nation to limit the
curse’s negative effects (reduced employment, GDP, etc.) on that nation
(Frankel, 2010). Hence, higher quality normative institutional processes
include those supporting such diversification (e.g., government inter­
national investment support in diverse domestic industry sectors
abroad). These processes can be unique to the existing economic and
social environments during a nation’s resource curse and should be
measureable via the extent of the curse’s effect on a nation’s broader
economic measures.
For normative and regulative institutional pillars, we apply well-
known institutional processes from emerging economy internationali­
zation literature to describe institution/firm co-evolution in a resource-
cursed environment. Hence, normative co-evolutionary institutional
processes involve firm alignment with government internationalization
ideology and/or political strategy (Cuervo-Cazurra et al., 2014; Rodri­
gues & Dieleman, 2018; Wang et al., 2012) and regulative
co-evolutionary institutional processes involve firm alignment with
regulatory internationalization restriction/restraint and/or government
investment/disinvestment. For the cognitive institutional pillar, we take
an interdisciplinary approach by integrating social/anthropological
institutional concepts concerning public discourse during a resource
curse (Gilberthorpe & Rajak, 2017) with cognitive concepts in the
emerging economy firm internationalization literature (Wang et al.,
2012). Hence, cognitive co-evolutionary institutional processes involve
firm alignment with positive/negative public internationalization
discourse. We use several specific emerging economy examples to
illustrate the wide variation in how these institutional processes of our
theoretical model are operationalized. Finally, Table 1 summarizes
institutional process quality’s moderating role in our relationships, and
Fig. 1 identifies key mechanisms driving co-evolutionary relationships
of emerging economy institutions and firm internationalization.
C. Funk et al. International Business Review 30 (2021) 101753

3.1. Resource curse boom stage effects even public discourse by appealing to their normative ideologies of
enhanced foreign influence and international status via OFDI initiatives.
In the resource curse boom stage, normative institutional processes, Brazil’s SOE Petrobras provides an example of how such co-optation
in the form of government ideologies and political strategies, drive the fosters state-driven corruption. After a significant 2007 oil discovery,
creation of regulative policies and investment rules. These processes the company ostensibly sought to fulfill normative ideological objectives
then co-evolve with cognitive institutional processes concerning public of domestic oil windfall retention and enhanced international image by
discourse, sentiments and actions. Lastly, the three pillars’ institutional purchasing a refinery in Pasadena, Texas. This purchase was found to be
processes impact SOE and/or POE internationalization initiatives. part of a multi-billion-dollar political bribery scheme pursued by the
For emerging economies with weak and/or corrupt normative and company even though 70 % of its board members (including its chair­
regulative institutions, a large economic windfall from a resource curse person) were appointed by the Brazilian government (Cahen, 2015).
boom stage can drive processes that worsen curse severity by weakening These emerging economy examples show that normative institu­
the rule of law and fostering bureaucratic mismanagement and cor­ tional processes supporting ideologies of windfall mismanagement or
ruption. The windfall’s magnitude also affects cognitive institutional political corruption can limit firm internationalization benefits. Like­
processes, raising public expectations and discourse that the windfall wise, normative institutional processes supporting careful resource
will fund needed infrastructure projects and public wage enhancement management can enhance internationalization benefits.
(Gilberthorpe & Rajak, 2017). For emerging economies with strong in­
Proposition 1a. Normative institutional process quality positively in­
stitutions, however, positive normative and regulative institutional
fluences how resource curse financial windfalls affect the co-evolution of
processes can transform cognitive discourse and blunt the windfall’s
emerging economy normative institutions and firm internationalization.
potential negative effects.
3.1.2. Regulative institutional processes
3.1.1. Normative institutional processes
As with the normative pillar, institutional process quality impacts
In an emerging economy, a resource curse boom stage is not
regulative institutional co-evolution with SOE and/or POE internation­
conducive to ‘escape’ internationalization for SOEs or POEs because it
alization during a resource curse. These processes should translate
increases institutional focus on local resource extraction and revenue
normative ideologies into concrete firm internationalization directives,
generation that greatly benefits the country (Frankel, 2010; Rodrigues &
but they could also be distorted by political strategy and/or corruption.
Dieleman, 2018). With normative institutional processes supporting
While the boom stage financial windfall usually supports less regulative
windfall use that benefits the emerging economy’s overall social and
restriction and additional foreign investment, the windfall’s impact on
economic structure, SOE and/or POE internationalization aligned with
corrupt or inept institutional actors can alter such investment support.
this ideology is encouraged. When normative institutional processes are
Examples from Indonesia, Venezuela and Malaysia are instructive in this
predominantly focused on garnering oil windfall revenues for public
instance.
expenditure, SOE and POE internationalization is either non-existent or
Indonesia’s state-owned oil company, Pertamina, initially followed a
limited to foreign investments that maximize domestic production.
normative ideology of domestic diversification via regulative actions of
Malaysia and Mexico’s internationalization actions exemplify this
spending oil boom revenues and short term foreign debt on energy and
phenomenon.
non-energy related domestic industries. Much of its international in­
Malaysia’s normative government ideology emphasized the finite
vestment focused on technology-based joint ventures to support do­
nature of the country’s oil reserves. Therefore, regulative actions sup­
mestic oil production. These large investments ended abruptly when
ported the internationalization of their state-owned oil company, Pet­
Pertamina defaulted on its international debt after a 1970’s ‘oil price
ronas, to establish a Southeast Asian presence for domestic supply needs.
shock.’ The Suharto government that subsequently controlled the
With relatively well-established manufacturing OFDI, oil windfalls were
company followed a more conservative normative ideology regarding
used to boost government-linked service sector (mostly financial)
oil windfalls and foreign investment, taking regulative actions to reduce
internationalization to approximately 56 % of national OFDI. Although
oil revenue dependence and limit foreign energy and manufacturing
the resource curse is not completely neutralized (see Doraiswami, 2015),
investment. By the 2000’s, only two privately-owned business groups
these normative and regulative institutional internationalization pro­
(Salim and Lippo) could be considered large emerging economy MNEs in
cesses can also further domestic development in education, agriculture
Indonesia (Carney & Dieleman, 2011), with Pertamina just beginning a
and manufacturing (Lee, Lee, & Yeo, 2017).
gradual internationalization.
Mexico’s contrasting normative ideology considered their 100 %
Indonesia’s normative and regulative “hesitant internationalization”
state-owned oil company, Pemex, predominantly a tax revenue gener­
strategy (Rodrigues & Dieleman, 2018) contrasts Venezuela’s, where oil
ator for public expenditures. Accordingly, restrictive regulative institu­
windfall revenues of SOE PDVSA have been used to support a normative
tional processes effectively limited the company’s strategic focus to
political strategy of funding social programs to keep socialist regimes in
domestic production. With infrequent infrastructure renewal and mini­
power (Movchan, Zotin, & Grigoryev, 2017). Like Mexico, PDVSA pur­
mum technology investments, early internationalization processes
sued strong domestic production with little POE internationalization
established alliances that provided additional knowledge and capabil­
investment. Unlike Mexico, however, PDVSA purchased 23 refineries in
ities for domestic production (Ramirez-Cendrero & Paz, 2017). This
eight countries, co-evolving with a government regulative policy of
rendered post-boom stage social and economic development
securing markets for Venezuelan oil (Corrales, Hernandez, & Salgado,
unsustainable.
2020) and possibly for evading Venezuelan taxes (Lopez-Morales,
Some emerging economy SOEs can increase their influence on
Gonzalez-Barragan, Maldonado de Luna, Velez De-Alba, & Muller-Jasso,
normative ideology and regulative actions in corrupt domestic envi­
2017). Consistent government intervention in company business prac­
ronments by specializing in unproductive processes favoring ‘grabber-
tices also drove poor management hires and insufficient investment to
friendly institutions’ (Mehlum, Moene, & Torvik, 2006). An SOE’s ties
upgrade technological capabilities, giving PDVSA the dubious distinc­
with local institutions and/or state actors can therefore be an important
tion of experiencing declining production during a boom period (Corrales
lobbying capability for internationalization investments. These ties
et al., 2020). With the boom ended, PDVSA must now follow regulative
might be obtained via cronyism (Dieleman & Sachs, 2008) or by poli­
directives to withdraw from foreign operations (Ludeña, 2016).
ticians serving on the SOEs board of directors and/or appointing com­
As stated earlier, Malaysia achieved impressive results from Petro­
pany management (Cuervo-Cazurra et al., 2014). As resource-cursed
na’s internationalization and in using the company’s windfall revenues
countries tend to use oil booms to increase spending on investment
to diversify and internationalize non-oil manufacturing and services
projects (Frankel, 2010), SOE managers can co-opt political actors and

5
C. Funk et al. International Business Review 30 (2021) 101753

(Lee et al., 2017). While completing these normative ideological goals oil windfall rents in an adverse economic environment. A “procyclical”
helped the country avoid a resource curse, the government’s pursuit of fiscal policy encourages windfall spending on wages for an increasing
ethnic inequality, evident in the regulative actions that fostered inter­ government worker population and/or capital spending on large infra­
national success of government-linked banking organizations (Dor­ structure projects. Foreign debt may also be used to amplify windfall
aiswami, 2015), remains a cognitive institutional concern and is revenues. Additionally, corrupt governments may use windfall rents to
discussed below. prolong their power, reduce dissent and limit democracy calls by
increasing military/internal security expenditures, reducing taxes and
Proposition 1b. Regulative institutional process quality positively in­
increasing public goods spending (i.e. rentier effects-see Ross, 2001).
fluences how resource curse financial windfalls affect the co-evolution of
Commodity price volatility, possibly related to a broader economic
emerging economy regulative institutions and firm internationalization.
downturn, reverses this trend and can cause severe political, economic
and social problems. Bust stage normative and regulative institutional
3.1.3. Cognitive institutional processes
process issues also impact cognitive institutions, as a surge in negative
The cognitive institutional pillar in a country reflects widely shared
public discourse further constrains government action (Frankel, 2010).
social knowledge and cognitive structures (schemas, frames and infer­
In short, weak institutions and/or institutional voids that are common to
ential sets) that influence how people understand, categorize and
emerging economies can exacerbate a resource curse bust stage, while
interpret a particular phenomenon (Kostova, 1997). These cognitive
effective governance can aid nations in avoiding the more severe bust
structures are issue- and/or domain-specific, guiding shared beliefs and
stage effects.
actions toward what is typical or taken-for-granted in a country (Treviño
et al., 2008). Scott (1995) believed that cognitive institutions could lead
3.2.1. Normative and regulative institutional processes
to isomorphism for institutional actors via processes that encourage the
Normative and regulative institutional processes for firm interna­
imitation of activities that have strong cultural support.
tionalization developed in the curse’s boom stage are challenged in the
Oil abundance in many emerging economies provides a domain
bust stage. Commodity price declines can curtail or even reverse inter­
where cognitive structures characterizing the resource curse paradigm
nationalization expenditures based on the emerging economy’s oil
can drive a “discourse of development” imposing particular normative
revenue dependence and its pursuit of boom stage revenue stabilization
values. Resource investments can create a dominant popular discourse
activities via budget actions, conservative debt policies, and/or the
of progress, growth and economic sovereignty, leading to jobs, mobility,
establishment of a reserve fund (Usui, 1997). On the one hand, an ide­
entrepreneurial opportunity and patronage connections. These expec­
ology supporting the international influence of ‘national champion’ type
tations are based on an environment of good governance, transparency
SOEs may be slowed or completely reversed by home government
and possibly liberalization or privatization, transformations that may be
intervention or disinvestment (Ludeña, 2016). As in the boom stage,
unrealistic given the nature and history of political control in the
state and firm corruption also strongly impact internationalization ide­
country. Thus, when these development and modernization expecta­
ologies and strategies.
tions encounter weak institutions with wealth mismanagement,
On the other hand, internationalization ideologies supporting non-
inequality and lost opportunity, public resentment, hostility and conflict
oil manufacturing and service sector SOEs and POEs may enjoy over­
may obtain (Gilberthorpe & Rajak, 2017).
seas investment stability (Corrales et al., 2020) rather than “escape”
Therefore, public evaluation and support of using resource curse
internationalization from weak institutions (Witt & Lewin, 2007). For
financial windfalls for firm internationalization is significantly influ­
instance, Indonesia conservatively used boom stage oil revenues for
enced by normative ideological and regulative processes regarding such
manufacturing and service sector diversification and excess oil revenue
internationalization. For example, Pertamina’s default on its interna­
deposits, which later helped to avoid severe economic problems and
tional debt garnered cognitive Indonesian public support for a conser­
maintain gradual firm internationalization during commodity price
vative internationalization ideology that applied mainly to large,
downturns (Usui, 1997). In contrast, large international oil refining in­
government-connected service industry firms. In Mexico, a normative
vestments by Venezuela’s PDVSA had to later be reversed to support
ideology regulating Pemex as the government’s revenue supplier
domestic social programs during commodity price market reductions
resulted in cognitive public suspicion of long-term international alli­
(Corrales et al., 2020; Ludeña, 2016). Even Brazil, with strong ‘national
ances or investments that allocate funds away from government coffers
champion’ ideologies and sector diversification strategies, had to reduce
(Ramirez-Cendrero & Paz, 2017). Venezuela’s cognitive public senti­
international investments during a mid-2010’s commodity bust because
ment is similar for PDVSA, although foreign investment is welcomed if it
of oil windfall revenue mismanagement and Petrobras corruption issues
benefits domestic production (Corrales et al., 2020). Lastly, the excep­
(Lenton, 2017). In short, normative and regulative institutional process
tionalism ideology surrounding Brazil and Malaysia’s ‘national cham­
quality regarding boom stage financial windfalls strongly impact the
pions’ Petrobras and Petronas, respectively, initially garnered
co-evolutionary processes of those same institutions and firm interna­
substantial positive cognitive public discourse and drove manufacturing
tionalization during the bust stage.
industry international investments. As discussed below, however, these
positive sentiments were later changed due to ethnic inequalities in Proposition 2a. Boom stage normative and regulative institutional process
Malaysia and corruption in Brazil (Cahen, 2015; Doraiswami, 2015; quality positively influences how resource curse-related economic downturns
Inkpen, 2016). Overall, emerging economy cognitive institutions tend to affect the co-evolution of emerging economy normative institutions and firm
support firm internationalization investments that further normative internationalization.
ideologies of foreign influence and/or enhanced domestic benefits (such
Proposition 2b. Boom stage normative and regulative institutional pro­
as industry diversification or additional domestic revenue).
cess quality positively influences how resource curse-related economic
Proposition 1c. Normative and regulative institutional process quality downturns affect the co-evolution of emerging economy regulative institutions
positively influence how resource curse financial windfalls affect the co- and firm internationalization.
evolution of emerging economy cognitive institutions and firm
internationalization. 3.2.2. Cognitive institutional processes
The development discourse of the resource curse assumes a type of
3.2. Resource curse bust stage effects exceptionalism of resource abundant states defined by their mineral
wealth. This exceptionalism translates into a common “expectation of
The resource curse bust stage results mainly from normative and modernity” in the resource-cursed country’s political structures, eco­
regulative institutional processes that misuse or mismanage boom stage nomic relations, and environmental landscape. When the resource boom

6
C. Funk et al.
turns into a bust, this common narrative is “turned to decades of betrayal
and disappointment” (Gilberthorpe & Rajak, 2017: 193). With reduced
state institutional support and strong negative public discourse, the
government’s normative obligations tend to focus on domestic prior­
ities. Accordingly, an SOE’s close ties with the political regime constrain
its internationalization expansion during the resource curse bust stage
(Marano, Tashman, & Kostova, 2017; Transparency International,
2011). This includes SOE subsidiaries in foreign markets, which may be
required to curtail activities to support domestic economic objectives
(Rodrigues & Dieleman, 2018). Interestingly, negative public discourse
surrounding the resource curse seems to arise more from issues of
resource equity and allocation than from whether or not a country is
perceived as quantitatively “beating” the curse. This seems to be
particularly true for emerging economies.
The development of negative discourse during a resource curse is
evident in Venezuela and Brazil. In Venezuela, normative and regulative
institutional processes surrounding oil windfall misuse/mismanagement
caused bust stage economic and social problems, driving negative public
discourse that in turn led to reduced firm internationalization.
In Brazil, an economic windfall from commodity sales to China led to
short-sighted policies and increased government spending in anticipa­
tion of future revenues. Leaders deferred addressing a weak political
system and a bureaucracy supporting interventionist state capitalism,
leading to corruption and diminished business innovation (Lyons &
Kiernan, 2015). However, China’s recent economic problems drove a
shrinking Brazilian economy and reductions or outright state interven­
tion in foreign investments. This resource curse boom and bust cycle
mirrored a similar experience from the 1980s, causing the country’s
media and public to revive an old adage: “‘Brazil is the country of the
future…and always will be’” (Smith, Valle, & Schmidt, 2015). In short,
the failure of formal, regulative institutions (i.e. governments) to create
economic progress led to the rise of informal, cognitive institutions that
created alternative scripts and schema to describe the state of affairs.
Over time, these scripts became “taken-for-granted” public beliefs about
reality (Berger & Luckman, 1966; Funk & Treviño, 2017).
In sharp contrast are examples of negative cognitive institutional
processes in Indonesia, Malaysia, Colombia and Argentina, countries
that are generally considered to have “beaten” the resource curse.
Indonesia beat the curse with a conservative fiscal program and limited
international investments. However, the privately-owned Salim Group,
one of the country’s few major emerging multinationals, encountered
mob violence due to its normatively-driven crony relationship with the
Suharto regime (Dieleman & Sachs, 2008). Malaysia used Petronas’ oil
windfall revenues to fund manufacturing and services sector diversifi­
cation and internationalization. Yet, these regulative actions allegedly
followed a normative political ideology of favoring the country’s ruling
(government-linked) and dominant ethnic group (Doraiswami, 2015).
Finally, Colombia and Argentina are both seen as neutralizing the curse
via partially privatizing their oil industries for international investment.
This normative ideology has caused ongoing armed conflict in Colombia
among various groups who believe they have a claim to oil wealth
(Dunning & Wirpsa, 2004). In Argentina, a return to normative
nationalistic ideas led to the partial ‘re-nationalization’ of the
state-owned oil company, YPF (Waterworth & Bradshaw, 2018), which
in turn led to lower company performance. While beyond the scope of
our research, these cases legitimize the idea that social, anthropological
and psychological “markers” should complement political and economic
measures to determine when a country experiences a resource curse
(Gilberthorpe & Rajak, 2017). Regarding our research, boom stage
normative and regulative institutional processes clearly drive the
development of cognitive institutional structures and processes in
resource-cursed emerging economies. When these cognitive processes
impact firm internationalization activities, a co-evolutionary relation­
ship among the three institutional processes and firm internationaliza­
tion can develop.
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International Business Review 30 (2021) 101753
Proposition 2c. Boom stage normative, regulative and cognitive institu­
tional process quality positively influences how resource curse-related eco­
nomic downturns affect the co-evolution of emerging economy cognitive
institutions and firm internationalization.
3.3. Dutch Disease and tradable industry sector effects
A number of resource-rich countries have avoided the resource curse
by investing in location advantages that nurture inter-industry linkages
and avoid over-specialization in oil assets and capabilities. These link­
ages can potentially support multiple users across industry sectors and/
or create horizontal effects that initiate new value chains in non-
extractive sectors (Narula, 2018).
As our previous country examples illustrate, however, many
emerging economies, have not seen their extractive sectors lead eco­
nomic development. The macroeconomic effects of Dutch Disease,
combined with weak domestic firms, weak institutions and poor location
advantages, cause extractive sector firms to operate in enclaves with
limited local linkages (Narula, 2018). Absent these linkages, Dutch
Disease and its associated “crowding out” effects can foster a lack of
‘learning by doing’ (i.e. industry spillover) benefits and national
manufacturing base erosion during resource booms. This can also result
in hysteresis, an irreversible loss of sector competitiveness in the
country, even when economic conditions normalize after a boom and
bust cycle subsides (Krugman, 1987; Murshed, 2004). Hysteresis can
linger across both stages of the resource curse, blunting emerging
economy manufacturing capabilities at home while imposing economic
hardship on the poorest members of society. For example, Dutch Disease
shrunk the agricultural and manufacturing sectors of Mexico and
Venezuela (Peck & Chayes, 2015; Usui, 1997). Below we use these and
two other emerging economy examples to explore how institutional
process quality influences the impact of curse-related Dutch Disease on
co-evolving relationships between normative, regulative and cognitive
institutional processes and firm internationalization.
3.3.1. Normative and regulative institutional processes
Some emerging economies use consistent and direct state regulative
institutional processes supporting a normative ideology of rapid inter­
nationalization and sector diversification for their national champion
firms and industries. Other countries use less interventionist regulative
processes in specific regions and sectors to influence market conditions
and allow more gradual firm internationalization (Finchelstein, 2017).
Resource curse-driven Dutch Disease can distort and hinder these
co-evolutionary processes. For example, Mexico’s normative ideologies
and regulative processes supported maintaining the flow of oil revenues
to finance public projects and personnel while eschewing foreign and
tradable sector investments (Usui, 1997). These curse-related institu­
tional processes resulted in Dutch Disease because both state- and
market-driven forms of internationalization were neglected. Only later
(partly due to the establishment of the North American Free Trade
Agreement) did large, privately owned multinationals like Cemex and
American Movil venture abroad (Zavaleta-Vazquez & Wise-Lozano,
2016).
Venezuela, while still focused on domestic oil revenue, allows in­
ternational investments that support those revenues and the incumbent
socialist government. Like Mexico, economic diversification at home
and via internationalization has largely been ignored (Rosales & San­
chez, 2018). Hence, both Mexican and Venezuelan normative and
regulative institutional processes have driven falling national produc­
tivity in extractive and tradable sectors.
Indonesia’s government, in contrast, followed a “balanced budget”
normative policy, utilizing their oil windfall for government deposits
and repaying foreign debt. Any government spending favored a
normative strategy of agricultural and non-oil industry development
while enhancing private, tradable sector growth. OFDI was also con­
servative, as the internationalization activities of Pertamina were
C. Funk et al.
restricted and only the largest tradable sector business groups (Salim
and Lippo) were encouraged (Lecraw, 1993). This combined broad
sector diversification and ‘hands-off’ approach toward non-oil sector
internationalization allowed Indonesia to avoid the Dutch Disease.
Brazil’s aeronautical industry national champion, Embraer, illus­
trates how curse-related Dutch Disease can alter a normative and
regulative institutional environment of direct support. Along with
regulative institutional processes, such as subsidies and tax incentives
(Schneider & Ioris, 2018), the state pursued a normative ideology of
international influence by forming a national development bank
(BNDES) to fund firm internationalization. However, two resource curse
boom/bust cycles occurred that shifted normative ideology and regu­
lative processes away from international influence and sector diversifi­
cation in favor of domestic public spending. The first resource curse in
the 1980s sharply reduced state support, and state control of Embraer
fell to 6.8 %. The second resource curse that followed the world financial
crisis in the early 2010s severely constrained government support of
R&D, subsidies, and export incentives. This resulted in Embraer’s
planned sale to Boeing in 2018.
These examples show how Dutch Disease can change the quality of
normative and regulative institutional processes that initially support
firm internationalization.
Proposition 3a. Normative institutional process quality positively in­
fluences how resource curse-related Dutch Disease affects the co-evolution of
emerging economy normative institutions and firm internationalization.
Proposition 3b. Regulative institutional process quality positively in­
fluences how resource curse-related Dutch Disease affects the co-evolution of
emerging economy regulative institutions and firm internationalization.
3.3.2. Cognitive institutional processes
As curse-driven Dutch Disease lingers across the curse’s boom and
bust stages, stage-driven changes in the quality of normative, regulative
and cognitive institutional processes can affect public discourse. The
perceived legitimacy of these changes can co-evolve socially obtained
knowledge and resulting cognitive structures, which in turn can also co-
evolve the reputation and actions of internationalizing firms (Kostova,
1997; McKelvey, 2002; Treviño et al., 2008). In short, Dutch Disease can
have varying impacts on how emerging economy public discourse and
firm internationalization co-evolves.
For example, Venezuela’s PDVSA pulled back international in­
vestments based on altered normative policies and regulative actions
concerning Dutch Disease and public outcry. Mexico’s Pemex, however,
has only recently pursued more international investment (partly to
counter Dutch Disease) based on slowly changing public perceptions of
international interference (Stojanovski, 2012).
Although well-developed sector diversification reduced overall
Dutch Disease impacts in Brazil, Petrobras’ actions during Brazil’s
resource curse periods significantly impacted other industries and the
public. When the company’s corruption scandal and poor management
decision-making impaired its reputation and ability to raise capital,
Petrobras compensated by increasing gasoline prices. This resulted in
strong negative public discourse and state-mandated price subsidies that
ultimately required the company to sell foreign and domestic assets
(Lenton, 2017). Regulative institutional actions to sell Embraer have
also proven controversial, as the country’s populist political party sued
to block the sale because it harmed Brazil’s national sovereignty (Tangel
& Wall, 2018). The sale was ultimately cancelled in April 2020. These
examples evidence a lingering Dutch Disease that negatively co-evolved
regulative, normative and cognitive institutional relationships with both
Petrobras’ and Embraer’s international expansion initiatives.
In Malaysia, ethnic favoritism in oil windfall allocation (including
the internationalization of government-linked companies) has contrib­
uted to negative public discourse concerning economic and social
inequality of ethnic minority populations. These issues are causing a
“brain drain” of minority populations in the country, reduced sector
8
International Business Review 30 (2021) 101753
diversification and a threat of Dutch Disease where none previously
existed (Doraiswami, 2015; Lee et al., 2017; World Bank, 2011). Hence,
poorly conceived and enacted regulative and normative institutional
processes regarding Dutch Disease can alter cognitive structures of
public discourse and sentiment. Overall, the above-described cognitive
processes co-evolve firm internationalization and future institutional
processes in each of the three pillars.
Proposition 3c. Institutional process quality dynamism positively in­
fluences how resource curse-related Dutch Disease affects the co-evolution of
emerging economy cognitive institutions and firm internationalization.
3.4. Co-evolution process illustration
In Table 1 below we summarize institutional process quality’s role in
relationships between resource curse boom, bust and Dutch Disease
stage effects and the co-evolution of emerging economy institutions and
firm internationalization. As the Table and our propositions describe,
process quality of the three institutional pillars effectively moderates
resource curse effects on co-evolution in each curse stage.
Additionally, Fig. 1 below situates institutional process quality in a
cyclical model, illustrating how the resource curse impacts the mecha­
nisms through which the co-evolution of emerging economy institutions
and firm internationalization occurs. We use McKelvey’s (2002)
“necessary and sufficient” conditions for organizational co-evolution to
ground the mechanisms in our model. Firms and government in­
stitutions are the “heterogeneous agents” with capabilities for learning,
adaptation, interaction and mutual influence, and resource curse im­
pacts act as conducting events and higher level constraints. Under these
conditions, we posit six sequential mechanisms that ignite the
co-evolutionary relationship.
First, the misalignment between the resource curse severity and
contextual information and data (economic, social, political, etc.)
regarding the ability of nations, industries and firms to successfully
handle curse effects forms an initial, emergent mechanism (Porter,
2006) that drives a search among institutions and firms for intentional
solutions to combat the curse. The initial misalignment acts as a moti­
vator of change in the second co-evolutionary mechanism, the existing
levels of institutional corruption and/or expertise in dealing with
resource curse environments. Third, changes to these levels drive insti­
tutional process quality, a key mechanism in developing international­
ization policy responses for each institutional pillar, as detailed in
Table 1 and in our Propositions. Fifth, institutional internationalization
policy responses are causal mechanisms for firms to interpret and react
to policies, given their levels of institutional interaction and influence.
The final co-evolutionary mechanism is the actions and policies
comprising the firm’s internationalization response, which impact
resource curse severity and national/industry/firm contexts.
The Brazilian example in Proposition 1a manifests these mechanisms
in a negative co-evolutionary relationship, as the mismanagement of a
boom stage windfall is partly attributable to 70 % of Petrobras’ board
seats being occupied by (possibly corrupt) government actors. While the
country’s ostensible normative internationalization ideology enhanced
its international influence and status, high levels of institutional cor­
ruption drove lower institutional quality processes that supported
buying a Texas refinery to advance bribery activities. This windfall
misuse fostered more severe curse effects for Brazil (especially when the
boom stage became a bust stage), driving negative public discourse
concerning both government institutions and Petrobras (Cahen, 2015;
Lyons & Kiernan, 2015).
In contrast, Malaysia’s boom stage experience evinces relatively
positive co-evolutionary mechanisms, as a conservative normative ide­
ology of securing domestic oil industry supply motivated SOE (Petro­
nas’) internationalization in support of non-oil industry sectors.
Institutionally, this conservative context, coupled with relatively low
corruption levels, enhanced normative and regulative institutional
C. Funk et al. International Business Review 30 (2021) 101753

Table 1
Resource Curse Effects on the Co-Evolutionary Relationships of Emerging Economy Institutions and Firm Internationalization: The Role of Institutional Process
Quality.
Resource Curse Impact on Co-Evolution of Normative Institutional Processes Regulative Institutional Processes Cognitive Institutional Processes
Stage (Major Effect) Emerging Economy (Internationalization Ideology/ (Regulative Internationalization (Positive/Negative Internationalization
Institutional Processes and Political Strategy) Restriction/Restraint) Discourse)
Firm Internationalization

Boom (Financial Positive: Enhances co-
windfall) P1 evolutionary
internationalization
Higher quality enhances co-
evolutionary internationalization
(P1a)
Higher quality enhances co-
evolutionary internationalization
(P1b)
Higher quality normative and regulative
processes support positive
internationalization discourse (P3a),
enhancing co-evolutionary
internationalization

Bust (Economic Negative: Impairs co- Higher quality Boom stage Higher quality Boom stage Higher quality Boom stage normative,
downturn) P2 evolutionary normative and regulative processes normative and regulative processes regulative and cognitive processes reduce
internationalization reduce negative co-evolutionary reduce negative co-evolutionary negative internationalization discourse
internationalization impacts (P2a) internationalization impacts (P2b) (P3b), reducing negative co-evolutionary
internationalization impacts

Dutch Disease Negative: Impairs co- Higher quality reduces negative co- Higher quality reduces negative co- Increasing normative, regulative and
(Impaired evolutionary evolutionary internationalization evolutionary internationalization cognitive institutional process quality over
Diversification) internationalization impacts (P3a) impacts (P3b) resource curse stages reduce negative
P3 internationalization discourse (P3c),
reducing negative co-evolutionary
internationalization impacts

Fig. 1. Resource Curse Effects on Co-Evolutionary Mechanisms of Emerging Economy Institutions and Firm Internationalization (based on McKelvey, 2002).

process quality, co-evolving both extractive and non-extractive sector
internationalization and ultimately blunting negative resource curse
effects. For the firm, higher quality institutional processes co-evolved
the mechanisms driving Petronas’ internationalization actions and
windfall sharing, thus reducing the curse’s negative environmental im­
pacts (Lee et al., 2017).
The model also illustrates the necessity of considering our work as a
complementary yet integral theoretical addition to existing (and prob­
ably new) research in IB, economics and development to fully under­
stand the curse’s impact on the co-evolution of emerging economy
institutions and firm internationalization. Specifically, our theory ex­
plains how institutional process quality can shape institutional inter­
nationalization responses to the curse, which in turn has a strong co-
evolutionary effect on the firm’s internationalization response and the
curse’s resulting environmental impact. Economics and development
research has investigated institutional and firm internationalization
response impacts on resource curse severity and national/industry/firm
contexts (Frankel, 2010; Papyrakis, 2017; Ross, 2001). Existing IB
research discusses co-evolutionary relationships among firms, in­
stitutions and firm internationalization (Cantwell et al., 2010; Cuer­
vo-Cazurra et al., 2016; Kostova et al., 2008; Rodrigues & Dieleman,
2018) and how firm/institutional corruption drives institutional quality
(Cuervo-Cazurra et al., 2014; Dieleman & Sachs, 2008; Rodrigues &
Dieleman, 2018; Wang et al., 2012; Wright et al., 2005). Finally, existing
economics and development work considers institutional corruption’s
role in shaping curse severity and national/industry contexts (El
Anshasy & Katsaiti, 2013; Ossowski et al., 2008; Ross, 2001; Sarmidi
et al., 2014). Future IB research in this area would be useful as studies
covering curse impacts from institutional and firm corruption are
minimal.

9
C. Funk et al.
4. Discussion
We expand IB’s limited contribution to the resource curse literature
by exploring the curse’s effects on the co-evolution of emerging econ­
omy institutions and their firms’ internationalization, which is an
important component of emerging economy economic and social
development. Our contributions to IB-related resource curse literature
are threefold.
First, we augment existing macro-level (country) approaches exam­
ining resource curse impacts on economic development with meso-
(economic/social institutions, industries) and micro- (individual firm)
level approaches in resource-driven emerging economies. Our novel
theoretical model illustrates the curse’s impact on co-evolutionary re­
lationships between economic and social institutions and the interna­
tionalization of oil industry SOEs and non-oil POEs. This expansion of
the literature to the internationalization domain is an important area of
inquiry, especially considering the recent focus on the activities and
benefits of SOE internationalization (Benito et al., 2016; Cuervo-Cazurra
et al., 2014).
Second, we are unaware of any other research that explores the
processual relationship between institutional pillars and the resource
curse. Our research builds on Treviño et al.’s (2008) process-oriented
approach to institutionalization by explaining how resource curse
characteristics change co-evolutionary relationships between emerging
economy regulative, normative and cognitive institutional processes and
firm internationalization. We also develop a novel concept, institutional
process quality, to better capture these relationships.
Third, to our knowledge, our model is the first to examine the eco­
nomic and social impacts of resource curse through the co-evolutionary
lens of emerging economy institutional processes and firm internation­
alization. Institutional support for such internationalization can benefit
emerging economy governments (via foreign market influence, legiti­
macy and asset security), industries (via new innovations and skills) and
living standards (via increased employment and technical training op­
portunities) (Benito et al., 2016; Cuervo-Cazurra et al., 2014; Luo &
Tung, 2007). However, our work reveals that the curse’s boom, bust and
Dutch Disease stages can hinder firm internationalization by altering
institutional processes, policies and beliefs (Treviño et al., 2008).
Finally, we add to Cuervo-Cazurra’s (2012) ‘Goldilocks Debate’
concerning whether explanations of EMNE phenomena could be sup­
ported by existing IB theories. Although Cuervo-Cazurra (2012) asserted
that SOEs’ non-business objectives limit the application of IB theory, we
demonstrate that Scott’s (1995) institutional pillars can explain how the
resource curse moderates co-evolutionary relationships between
emerging economy institutions and their SOEs’ internationalization.
4.1. Firm and institutional policy implications
Our research enjoins emerging market policy-makers and their firms
to build robust co-evolutionary relationships via institutional processes
that are “immune” to de-internationalization pressures over all three
resource curse stages (Funk & Treviño, 2017). For example, normative
and regulative processes should support ‘patient’ EMNE investment
capital to moderate volatility across the curse’s boom, bust and Dutch
Disease stages (Finchelstein, 2017), market-based governance reforms
to enhance foreign investor confidence (Organization for Economic
Cooperation and Development (OECD, 2006), and transparency in na­
tional budget and commodities fund administration to discourage do­
mestic rent-seeking opportunities (see Frankel, 2010). Additionally,
normative institutional support of international revenue and resource
governance transparency agreements (such as the multi-stakeholder
Extractive Industries Transparency Initiative) can enhance SOE legiti­
macy abroad, and EMNEs can utilize their ties with home country
governmental actors to lobby for more pro-market rules and norms of
behavior (Cuervo-Cazurra, 2015). These regulative and normative
institutional initiatives can in turn alter public beliefs and cognitive
10
International Business Review 30 (2021) 101753
discourse concerning socially responsible resource curse windfall allo­
cation and the home country benefits of firm internationalization.
5. Limitations and future research
Although our work elucidates resource curse impacts on co-evolving
institutional processes and firm internationalization in several different
emerging economies, sustained academic debate continues concerning
the larger questions of how resource curses emerge, when and where
they exist and how they are solved (Papyrakis, 2017). Additionally,
institutional corruption influences over firms vary with resource curse
severity, government type, state/private ownership, national culture,
etc., requiring more nuanced empirical research using individual and
multiple country settings. This is evident in our discussions of various
countries that have apparently “beaten” the curse but still exhibit some
negative features, especially in the cognitive institutional pillar.
More empirical work is also necessary to better understand public
discourse-related curse effects on the co-evolution of emerging economy
institutions and firm internationalization. Berger and Luckman (1966)
saw language as the fundamental carrier of “taken-for-granted”, socially
available “stocks of knowledge” that define the logic of institutional
order. Institutional actors use language in co-evolutionary processes for
understanding and habitualizing activities, describing common experi­
ences retained in the institution’s collective consciousness, and
conveying institutional knowledge across generations. Analyzing
discourse could provide a “coherent framework” to investigate processes
underlying resource curse-related institutionalization and co-evolution
(Parker, 1992; Phillips, Lawrence, & Hardy, 2004) and firm-level
internationalization (Treviño & Doh, 2020). Emerging economies and
EMNEs could use these analyses to develop improved legitimation
strategies (Vaara & Tienari, 2008) for counteracting the resource curse’s
negative reputational impacts.
6. Conclusion
We challenge and extend prior IB, economics and social science
research by unraveling how the unique characteristics of resource-
cursed emerging economies (e.g., extreme boom/bust cycles, large
economic ‘windfalls’ and negative public discourse, and industry
crowding-out effects from the Dutch Disease) impact the co-evolution of
emerging economy institutions and their firms’ internationalization.
While empirical work is still necessary, our emerging economy examples
convey why and how a nation’s institutional pillars, SOEs and POEs
enact processes that impact resource curse severity. These processes may
include establishing corrupt institutional ties to pursue increased natu­
ral resource rents via unproductive, non-market activities instead of
fostering more robust capability development. Both mismanagement
and corrupt ties can thwart the co-evolution of emerging economy in­
stitutions and firm internationalization, ultimately diminishing human
development improvements (innovation, job creation, higher per capita
income, enhanced know-how) that internationalization can bring.
Our results motivate consideration of policy actions in tradable and
natural resource sectors to maintain the co-evolution of emerging
economy institutions and firm internationalization over the resource
curse’s boom and bust stages. Such policies include regulative, norma­
tive and cognitive institutional initiatives that assure equitable resource
curse windfall distribution and, by application, enhanced reputations of
emerging economy SOEs and their governments. Again, further inves­
tigation of these initiatives is needed to clarify their role in building
sustained economic, political and social institutions that can enhance
economic and human capital development in resource-cursed emerging
economies.
Declaration of Competing Interest
The authors report no declarations of interest.
C. Funk et al. International Business Review 30 (2021) 101753

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