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How does Religion Bias the Allocation of Foreign Direct Investment? The Role of Institutions

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  • Jérôme Hergueux

    (LaRGE Research Center, Université de Strasbourg)

Abstract

We construct a gravity model of worldwide foreign direct investment stock (FDI) in order to study the effect of religion on FDI allocation. We establish empirically that both bilateral religious similarity and bilateral religious diversity foster FDI at the country pair level. These apparently contradicting results confirm an empirical puzzle that has already emerged in the literature, particularly in the case of trade in goods. We investigate whether the answer to this puzzle could lie on the fact that the effect of these two variables play for different types of countries, depending on the level of efficiency of their institutions.

Suggested Citation

  • Jérôme Hergueux, 2012. "How does Religion Bias the Allocation of Foreign Direct Investment? The Role of Institutions," Working Papers of LaRGE Research Center 2012-06, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    • Handle: RePEc:lar:wpaper:2012-06
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    More about this item

    Keywords

    culture; religion; institutions; trust; foreign direct investment.;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General
    • Z12 - Other Special Topics - - Cultural Economics - - - Religion

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