Institutional quality, asset specificity, and foreign direct investment

Man Tan, Dengyu Yang and Qijing Yang

Journal of International Money and Finance, 2023, vol. 134, issue C

Abstract: This article demonstrates that MNC's foreign direct investment decision is linked with institutional quality and hinges on the asset-specificity intensity of FDI. Using a comprehensive global FDI database between 2003 and 2019, our results show that MNCs tend to engage in FDI of high asset-specificity in countries with superior institutional quality, while they launch FDI of low asset-specificity in countries with inferior institutional quality. Moreover, when engaging in FDI of high asset-specificity, MNCs take property rights institutions more seriously, and prefer the sole proprietorship model to the joint venture model there.

Keywords: FDI; Location choice; Ownership strategy; Institutional quality; Asset specificity (search for similar items in EconPapers)
JEL-codes: D21 D22 F21 F23 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:134:y:2023:i:c:s0261560623000463

DOI: 10.1016/j.jimonfin.2023.102845

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