Digital trade rules have proliferated rapidly, yet the literature still treats institutional environments and firm behavior in a comparative-static manner, overlooking the feedback loops and stock-like accumulation dynamics through which regulatory openness shapes firm capabilities over time. Drawing on general systems theory and system dynamics, this paper models the digital trade rule regime as an “institutional system” and the overseas subsidiary network of digital MNEs as an “enterprise system,” linked through three capability stocks (market, production, knowledge), cross-subsystem coupling, absorptive capacity modulation, and five internal feedback loops. We derive a reduced-form dynamic panel equation mapping structural parameters onto estimable coefficients, and test its static counterpart using data on 6850 subsidiaries of UNCTAD’s top 100 digital MNEs (2000–2024) matched with the TAPED database. Three findings emerge. First, institutional openness—measured by rule depth and breadth—exerts a positive causal effect on subsidiary ROA, surviving IV estimation and multiple robustness checks. Second, the effect transmits through market expansion, production efficiency, and knowledge accumulation channels, confirmed by Baron–Kenny mediation with Sobel tests. Third, the New Digital Economy (NDE) module displays point estimates 4–8 times larger than other modules, and joint Wald tests reject coefficient equality, providing qualified support for Meadows’ leverage-point hierarchy. Our contribution lies in bridging system dynamics modeling with econometric causal identification, and in unifying transaction cost theory, the OLI paradigm, and the knowledge-based view within a single open-system framework.
Gao et al. (Tue,) studied this question.