Cultural Diversity and Foreign Direct Investment

Wei Feng, Yanrui Wu and Yue Fu
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Wei Feng: School of Management and Economics, Southeast University, China
Yue Fu: School of Management and Economics, Southeast University, China

No 20-10, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: In this paper, we first propose a theoretical model and derive hypotheses about the relationship between cultural diversity and foreign direct investment (FDI). We then test these hypotheses through regression analysis of a dataset of 230 Chinese cities covering the period of 2000-2014. It is shown that cultural diversity and FDI absorption are negatively correlated. The main mechanism is that cultural diversity impedes human capital development and hence obstructs FDI absorption. However, this negative relationship disappears gradually over time. In addition, it is also shown that there are threshold and spatial spillover effects. This research not only enriches the theory of FDI location, but also has implications for FDI policy-making.

Keywords: Cultural diversity; FDI absorption; Economic growth; China (search for similar items in EconPapers)
JEL-codes: F21 F41 G18 (search for similar items in EconPapers)
Pages: 31
Date: 2020
New Economics Papers: this item is included in nep-cna, nep-cul, nep-fdg, nep-gro, nep-int, nep-ore and nep-tra
Note: MD5 = 68e4f8656e95d3e3771e8188593b3f23
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Persistent link: https://EconPapers.repec.org/RePEc:uwa:wpaper:20-10

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