Outward foreign direct investment by emerging market multinationals: The directionality of institutional distance

Ryan W. Tang and Peter J. Buckley

Journal of Business Research, 2022, vol. 149, issue C, 314-326

Abstract: We investigate how emerging market multinationals (EMNEs) choose locations for foreign direct investment (FDI) and how they determine the scale of FDI in host countries where formal institutions are more developed or less than their home country. Integrating internalization theory with the directionality logic of institutional distance, we develop theoretical arguments of cost-effectiveness related to FDI location and FDI scale in two institutional directions: host countries with more developed institutions than the home country and those with less developed institutions. We hypothesize that an EMNE’s likelihood of investing in the positive (negative) direction decreases (increases) with the increase in home–host institutional distance, but the investment scale increases (decreases) with increasing institutional distance. The FDI location choice varies among EMNEs with different levels of intangible assets, but the FDI scale does not. Our analyses of 3,297 EMNEs’ outward FDI in 100 host countries between 2004 and 2019 provide supportive evidence. This study extends internalization theory using EMNE-specific evidence of directional distance between home- and host-country institutions.

Keywords: Emerging market multinationals; Foreign direct investment; Internalization theory; Institutional distance; Institutional direction (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:149:y:2022:i:c:p:314-326

DOI: 10.1016/j.jbusres.2022.05.047

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