This study explores the dynamic interplay between international politics and US multinational enterprises' (MNEs) foreign direct investment (FDI) strategies. Drawing on hegemonic stability theory, our research examines how the transition from a unipolar to a multipolar world influences investment decisions, which have been based on positive-sum thinking. We analyze firm-level FDI data from 2013 to 2021, uncovering a notable trend: US MNEs increasingly invest in countries that show rising Chinese outbound FDI (OFDI) within stable international institutions supported by the hegemon. However, this trend diminishes amid diverging international institutions due to the evolving geopolitical landscape driven by the US-China rivalry, particularly in host countries participating in the Belt and Road Initiative (BRI), during periods of intensified US-China tensions, and in strategically important sectors for national security. Our findings challenge traditional frameworks that mainly focus on economic rationale for FDI location decisions and evaluate host country institutions solely on economic criteria or deviations from those of the home country. Instead, we highlight the need for a nuanced understanding of institutional divergence at a transnational level, recognizing the implications of a multipolar world order on international business.
