Is Home-Host Cultural Distance a Risk? Evidence from Outward Foreign Direct Investment by Chinese Enterprises

Hang Su and Yao Fu
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Hang Su: College of International Economics and Trade, Dongbei University of Finance and Economics, Dalian, China.
Yao Fu: College of International Economics and Trade, Dongbei University of Finance and Economics, Dalian, China.

International Journal of Economics and Financial Issues, 2022, vol. 12, issue 1, 7-12

Abstract: Cultural distance is always regarded as a risk in the decision making of enterprises involved in the outward foreign direct investment (OFDI), however, investment is a powerful driver of productivity growth and increased innovation capacity of enterprises in both countries. Is cultural distance a risk ? Using Hofstede s indicators and the Kogut and Singh index (1988), this paper calculates the cultural distance based on six cultural dimensions and further examines the effect of cultural distance on the outward foreign direct investment by Chinese enterprises and its mediating effects on the role of other factors influencing the decisions of multinationals. The results indicate that there is a nonlinear effect of cultural distance and the mediating effect of cultural distance is negative.

Keywords: Cultural Distance; Multinationals; Outward Foreign Direct Investment; Nonlinear Effect; Belt and Road Initiative (search for similar items in EconPapers)
JEL-codes: C33 F21 F23 (search for similar items in EconPapers)
Date: 2022
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