Institutions and FDI location choice: The role of cultural distances

Abstract

Using an extensive data set on foreign invested enterprises (FIEs) in the Chinese mainland, we compare the sensitivities of the location choice of foreign direct investment (FDI) from six major source countries/areas (Hong Kong, Taiwan, US, EU, Japan and Korea) toward the variation in the strength of economic institutions across China's regions. It is found that FIEs from the source countries/areas that are culturally more remote from China often exhibit a stronger aversion to regions with weaker economic institutions. Moreover, this pattern is often more salient when FDI takes the form of fully-owned enterprises (FOEs) than when it takes the form of joint ventures (JVs).

Globalization, foreign direct investment, and urban growth management: Policies and conflicts in Vientiane, Laos

“…Significant evolution and development of economies are driven by FDI as an open-country policy, which brings new technologies, capital, and new economic structures to the regions (De Mello, 1997;Du et al, 2012). Therefore, attracting FDI is a top priority for many countries around the world.…”

Human rights protection and foreign direct investment: The case of post‐socialist countries

“…Investor's decision about the investment in a foreign country does not depend solely on the institutional environment in the host country, but as well on a relative difference between host and source country institutional environments. The decision of a foreign‐investing enterprise to enter a foreign market is based mainly on its knowledge and experience with the local market (Du, Lu, & Tao, ). Such companies prefer to invest in markets perceived to be psychologically close, because they present lower levels of uncertainty to them (a ‘physic distance’ theory) (Aleksynska & Havrylchyk, ).What is more, institutional differences may be perceived as a source of comparative advantage for countries (the so‐called ‘institutional comparative advantage’) (Levchenko, ).…”

“…The role of institutional distance has been studied with respect to inter alia property rights (Bénassy-Quéré et al, 2007), corruption index (Habib & Zurawicki, 2002), and cultural distance (Du et al, 2012). It seems justified to conduct an analogous study for the standards of human rights.…”

Requisite Skill Availability and Multinational Corporations Locational Strategies in Nigeria

“…The relevance of requisite skill availability and the location choices of multinational corporations (MNCs) have gained much attention in contemporary research. It focuses explicitly on the embeddedness of firms into local institutional environments (Du, Lu, Tao 2012). Foreign firms tend to become highly dependent on the institutional factors at the location of choice for investment and have to adapt themselves (at least to a certain extent) to the local institutional framework in order to gain legitimacy and integration within the regional economic system especially when it comes to sourcing for requisite skill and labour as graduate skill mismatch has been adjudged to be an inhibitor of the locational choices of MNCs in Nigeria (Awogbenle, Iwuamadi, 2010).…”