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Foreign direct investment: the role of institutional and cultural determinants

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  • Navina Lucke
  • Stefan Eichler

Abstract

Using panel data for 29 source and 65 host countries in the period 1995--2009, we examine the determinants of bilateral FDI stocks, focusing on institutional and cultural factors. The results reveal that institutional and cultural distance is important and that FDI has a predominantly regional aspect. FDI to developing countries is positively affected by better institutions in the host country, while foreign investors prefer to invest in developed countries that are more corrupt and politically unstable compared to home. The results indicate that foreign investors prefer to invest in countries with less diverse societies than their own.

Suggested Citation

  • Navina Lucke & Stefan Eichler, 2016. "Foreign direct investment: the role of institutional and cultural determinants," Applied Economics, Taylor & Francis Journals, vol. 48(11), pages 935-956, March.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:11:p:935-956
    DOI: 10.1080/00036846.2015.1090551
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