Institutional Distance and Foreign Direct Investment
Cezar, Rafael; Escobar Gamboa, Octavio Romano (2015), Institutional Distance and Foreign Direct Investment, Review of World Economics, 151, 4, p. 713-733. 10.1007/s10290-015-0227-8
TypeArticle accepté pour publication ou publié
Journal nameReview of World Economics
MetadataShow full item record
Développement, institutions et analyses de long terme [DIAL]
Banque de France
Escobar Gamboa, Octavio Romano
School of Business
Abstract (EN)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.
Subjects / KeywordsForeign Direct Investment; institutions; heterogeneous firms; gravity model
Showing items related by title and author.