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Institutions and FDI location choice: The role of cultural distances

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  • Du, Julan
  • Lu, Yi
  • Tao, Zhigang

Abstract

Using an extensive data set on foreign invested enterprises (FIEs) in the Chinese mainland, we compare the sensitivities of the location choice of foreign direct investment (FDI) from six major source countries/areas (Hong Kong, Taiwan, US, EU, Japan and Korea) toward the variation in the strength of economic institutions across China's regions. It is found that FIEs from the source countries/areas that are culturally more remote from China often exhibit a stronger aversion to regions with weaker economic institutions. Moreover, this pattern is often more salient when FDI takes the form of fully-owned enterprises (FOEs) than when it takes the form of joint ventures (JVs).

Suggested Citation

  • Du, Julan & Lu, Yi & Tao, Zhigang, 2012. "Institutions and FDI location choice: The role of cultural distances," Journal of Asian Economics, Elsevier, vol. 23(3), pages 210-223.
  • Handle: RePEc:eee:asieco:v:23:y:2012:i:3:p:210-223
    DOI: 10.1016/j.asieco.2010.11.008
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    More about this item

    Keywords

    Economic institutions; Culture distance; FDI location choice;
    All these keywords.

    JEL classification:

    • P37 - Economic Systems - - Socialist Institutions and Their Transitions - - - Legal
    • P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid
    • 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

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