What are the relevant dimensions of distance for direct investments from emerging countries? The role of home and host country contexts

Yener Kandogan

Applied Economics, 2024, vol. 56, issue 60, 9015-9030

Abstract: The focus in the large literature on distance measures has generally been on one or just a few of its many dimensions. When considering their effects, researchers typically use pairwise measures and do not consider their directionality. This article argues that simple pairwise measures are inadequate, and it introduces asymmetric effects of distances by considering home and host country institutional contexts in the analysis. Asserting significant differences in institutional development between emerging and advanced economies, the article examines the differing effects of seven distance measures based on economic development in home and host countries of foreign direct investment (FDI). A comprehensive data from 124 countries for 2013–2017 is used in analysing its location and size with an augmented gravity model of FDI stocks adopting a generalized linear regression estimation method. The results suggest the following: Home country context is not relevant for cultural, political, common spoken language or colonial relationship dimensions of distance. For multinationals from advanced economies considering advanced hosts for investment, cultural, educational and political distances are not relevant. When the same multinationals consider emerging hosts, these are significant dimensions. However, for an emerging country multinational considering other emerging hosts, all distance dimensions are relevant.

Date: 2024
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DOI: 10.1080/00036846.2023.2296373

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