Economics at your fingertips  

Institutional Distance and Foreign Direct Investment

Rafael Cezar and Octavio Escobar ()

Post-Print from HAL

Abstract: This paper studies the link between Foreign Direct Investment (FDI) and institutional distance. Using a heterogeneous firms framework, we develop a theoretical model to explain how institutional distance influences FDI and it is shown that institutional distance reduces both the likelihood that a firm will invest in a foreign country and the volume of investment it will undertake. We test our model, using inward and outward FDI data on OECD countries. The empirical results confirm the theory and indicate that FDI activity declines with institutional distance. In addition, we find that firms from developed economies adapt more easily to institutional distance than firms from developing economies.

Keywords: Foreign Direct Investment; institutions; heterogeneous firms; gravity model (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-bec, nep-cse and nep-int
Note: View the original document on HAL open archive server:
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13) Track citations by RSS feed

Published in Review of World Economics, 2015, 151 (4), ⟨10.1007/s10290-015-0227-8⟩

Downloads: (external link) (application/pdf)

Related works:
Journal Article: Institutional distance and foreign direct investment (2015) Downloads
Working Paper: Institutional distance and foreign direct investment (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1007/s10290-015-0227-8

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().

Page updated 2021-03-28
Handle: RePEc:hal:journl:hal-01270939