diff --git a/config/config/src/index.ts b/config/config/src/index.ts
index 76808e04c5..ce309343eb 100644
--- a/config/config/src/index.ts
+++ b/config/config/src/index.ts
@@ -334,9 +334,9 @@ export async function getConfig (opts: {
     globalDirRoot = path.join(pnpmConfig.pnpmHomeDir, 'global')
   }
   pnpmConfig.globalPkgDir = path.join(globalDirRoot, GLOBAL_LAYOUT_VERSION)
+  pnpmConfig.dir = cwd
   if (cliOptions['global']) {
     delete pnpmConfig.workspaceDir
-    pnpmConfig.dir = pnpmConfig.globalPkgDir
     pnpmConfig.bin = npmConfig.get('global-bin-dir') ?? env.PNPM_HOME
     if (pnpmConfig.bin) {
       fs.mkdirSync(pnpmConfig.bin, { recursive: true })
@@ -382,11 +382,8 @@ export async function getConfig (opts: {
     if (pnpmConfig.enableGlobalVirtualStore == null) {
       pnpmConfig.enableGlobalVirtualStore = true
     }
-  } else {
-    pnpmConfig.dir = cwd
-    if (!pnpmConfig.bin) {
-      pnpmConfig.bin = path.join(pnpmConfig.dir, 'node_modules', '.bin')
-    }
+  } else if (!pnpmConfig.bin) {
+    pnpmConfig.bin = path.join(pnpmConfig.dir, 'node_modules', '.bin')
   }
   pnpmConfig.packageManager = packageManager
 
diff --git a/global/commands/src/globalAdd.ts b/global/commands/src/globalAdd.ts
index 2e9dd2d577..095a88ddd0 100644
--- a/global/commands/src/globalAdd.ts
+++ b/global/commands/src/globalAdd.ts
@@ -37,6 +37,10 @@ export async function handleGlobalAdd (
   opts: GlobalAddOptions,
   params: string[]
 ): Promise<void> {
+  // Resolve relative path selectors to absolute paths before the working
+  // directory is changed to the global install dir, otherwise "." or
+  // "./foo" would resolve against the temp install directory.
+  params = params.map((param) => resolveLocalParam(param, opts.dir))
   const globalDir = opts.globalPkgDir!
   const globalBinDir = opts.bin!
   cleanOrphanedInstallDirs(globalDir)
@@ -137,6 +141,22 @@ export async function handleGlobalAdd (
   await linkBinsOfPackages(pkgs, globalBinDir, { excludeBins: binsToSkip })
 }
 
+function resolveLocalParam (param: string, baseDir: string): string {
+  for (const prefix of ['file:', 'link:']) {
+    if (param.startsWith(prefix)) {
+      const rest = param.slice(prefix.length)
+      if (rest.startsWith('.')) {
+        return prefix + path.resolve(baseDir, rest)
+      }
+      return param
+    }
+  }
+  if (param.startsWith('.')) {
+    return path.resolve(baseDir, param)
+  }
+  return param
+}
+
 async function removeExistingGlobalInstalls (
   globalDir: string,
   globalBinDir: string,
diff --git a/pnpm/src/cmd/root.ts b/pnpm/src/cmd/root.ts
index ee037cd40f..7cdac30448 100644
--- a/pnpm/src/cmd/root.ts
+++ b/pnpm/src/cmd/root.ts
@@ -39,10 +39,11 @@ export async function handler (
   opts: {
     dir: string
     global?: boolean
+    globalPkgDir?: string
   }
 ): Promise<string> {
   if (opts.global) {
-    return `${opts.dir}\n`
+    return `${opts.globalPkgDir}\n`
   }
   return `${path.join(opts.dir, 'node_modules')}\n`
 }
diff --git a/pnpm/test/install/global.ts b/pnpm/test/install/global.ts
index 1aeb2ba43f..0cc5b1ac74 100644
--- a/pnpm/test/install/global.ts
+++ b/pnpm/test/install/global.ts
@@ -370,6 +370,51 @@ test('global add refuses to install when bin name conflicts with another global
   expect(findGlobalPkg(globalPkgDir(pnpmHome), 'pkg-a')).toBeTruthy()
 })
 
+test('global add from a local directory using "."', () => {
+  prepare()
+  const global = path.resolve('..', 'global')
+  const pnpmHome = path.join(global, 'pnpm')
+  fs.mkdirSync(pnpmHome, { recursive: true })
+
+  // Create a local package with a bin
+  const localPkg = path.resolve('..', 'my-local-tool')
+  fs.mkdirSync(localPkg, { recursive: true })
+  fs.writeFileSync(path.join(localPkg, 'package.json'), JSON.stringify({
+    name: 'my-local-tool',
+    version: '1.0.0',
+    bin: { 'my-local-tool': './index.js' },
+  }))
+  fs.writeFileSync(path.join(localPkg, 'index.js'), '#!/usr/bin/env node\nconsole.log("hello")\n')
+
+  const env = {
+    [PATH_NAME]: pnpmHome,
+    PNPM_HOME: pnpmHome,
+    XDG_DATA_HOME: global,
+    pnpm_config_store_dir: path.resolve('..', 'store'),
+  }
+
+  // Install globally from within the package directory using "."
+  // This used to fail because "." was resolved relative to the temp install
+  // directory instead of the user's CWD.
+  execPnpmSync(['add', '-g', '.'], { cwd: localPkg, env, expectSuccess: true })
+
+  // Verify the package was installed globally
+  expect(findGlobalPkg(globalPkgDir(pnpmHome), 'my-local-tool')).toBeTruthy()
+
+  // Verify the bin was linked
+  expect(fs.existsSync(path.join(pnpmHome, 'my-local-tool'))).toBeTruthy()
+
+  // Install globally using a file: relative selector
+  execPnpmSync(['add', '-g', 'file:./'], { cwd: localPkg, env, expectSuccess: true })
+  expect(findGlobalPkg(globalPkgDir(pnpmHome), 'my-local-tool')).toBeTruthy()
+  expect(fs.existsSync(path.join(pnpmHome, 'my-local-tool'))).toBeTruthy()
+
+  // Install globally using a link: relative selector
+  execPnpmSync(['add', '-g', 'link:../my-local-tool'], { cwd: process.cwd(), env, expectSuccess: true })
+  expect(findGlobalPkg(globalPkgDir(pnpmHome), 'my-local-tool')).toBeTruthy()
+  expect(fs.existsSync(path.join(pnpmHome, 'my-local-tool'))).toBeTruthy()
+})
+
 test('global remove deletes install group and bin shims', async () => {
   prepare()
   const global = path.resolve('..', 'global')