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Institutional Distance and Foreign Direct Investment

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Institutional Distance FDI.pdf (368.5Kb)
Date
2015
Dewey
Economie internationale
Sujet
Foreign Direct Investment; institutions; heterogeneous firms; gravity model
JEL code
F.F1.F12; F.F2.F23; H.H8.H80; K.K2.K20
Journal issue
Review of World Economics
Volume
151
Number
4
Publication date
2015
Article pages
713-733
Publisher
Springer
DOI
http://dx.doi.org/10.1007/s10290-015-0227-8
URI
https://basepub.dauphine.fr/handle/123456789/14038
Collections
  • LEDa : Publications
Metadata
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Author
Cezar, Rafael
12772 Développement, institutions et analyses de long terme [DIAL]
84179 Banque de France
Escobar Gamboa, Octavio Romano
108713 School of Business
Type
Article accepté pour publication ou publié
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.

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