Host country profiles beyond pairwise distances in gravity models of foreign direct investment

Yener Kandogan

Global Business and Economics Review, 2025, vol. 32, issue 3, 233-254

Abstract: In studying foreign direct investment (FDI) patterns, this article goes beyond simple pairwise distance measures and incorporates host country profiles in socio-economic, political, historical, and cultural dimensions. In addition to supporting the findings in the literature regarding the effect of distances, the comprehensive analysis of 182 countries in this article suggests that host country socio-economic, political, historical and cultural profiles significantly contribute to explaining the FDI stocks from any home country. In particular, irrespective of distances with the home country of multinationals, more democratic host countries that are economically more developed with high educational attainment are more attractive locations for foreign direct investment. FDI stocks are also higher in host countries with larger percentage of English speakers or Christian populations. Controlling for colonial ties, former colonies tend to be less attractive locations for multinationals from all home countries. Lastly, host countries with cultures that are more individualistic, more prone to indulgence, low in masculinity and power distance dimensions, high in uncertainty avoidance and long-term orientation dimensions attract more FDI from multinationals from any country beyond the effects of cultural similarities or differences.

Keywords: gravity models; foreign direct investment; FDI; country distances. (search for similar items in EconPapers)
Date: 2025
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