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The three pillars of institutional theory and FDI in Latin America: An institutionalization process

  • Trevino, Len J.
  • Thomas, Douglas E.
  • Cullen, John
Registered author(s):

    This paper describes the process of institutionalization and legitimization in countries in Latin America and its impact on organizational decision-making regarding inward foreign direct investment (FDI). It argues that institutionalization is a process that works through all three pillars--cognitive, normative, and regulative--and that this process can legitimize a host market for foreign investors. The study examines institutional reform in 16 Latin American countries using several indices of institutional change occurring between 1970 and 2000. Results indicate that institutional processes that legitimize more effectively through the cognitive and normative pillars (e.g. educational attainment, bilateral investment treaties, privatization, and political uncertainty) are better indicators of inward FDI than those that legitimize primarily through the regulative pillar (e.g. tax reform, trade reform, and financial account liberalization).

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    File URL: http://www.sciencedirect.com/science/article/pii/S0969593107001394
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    Article provided by Elsevier in its journal International Business Review.

    Volume (Year): 17 (2008)
    Issue (Month): 1 (February)
    Pages: 118-133

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    Handle: RePEc:eee:iburev:v:17:y:2008:i:1:p:118-133
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    1. Sethi, Deepak & Guisinger, Stephen & Ford, David L. & Phelan, Steven E., 2002. "Seeking greener pastures: a theoretical and empirical investigation into the changing trend of foreign direct investment flows in response to institutional and strategic factors," International Business Review, Elsevier, vol. 11(6), pages 685-705, December.
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    4. Shang-Jin Wei, 1997. "How Taxing is Corruption on International Investors?," William Davidson Institute Working Papers Series 63, William Davidson Institute at the University of Michigan.
    5. Oxley, Joanne E., 1999. "Institutional environment and the mechanisms of governance: the impact of intellectual property protection on the structure of inter-firm alliances," Journal of Economic Behavior & Organization, Elsevier, vol. 38(3), pages 283-309, March.
    6. Mudambi, Ram & Navarra, Pietro, 2002. "Institutions and internation business: a theoretical overview," International Business Review, Elsevier, vol. 11(6), pages 635-646, December.
    7. Kenneth A. Froot & Jeremy C. Stein, 1992. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," NBER Working Papers 2914, National Bureau of Economic Research, Inc.
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    11. Oded Shenkar & Mary Ann von Glinow, 1994. "Paradoxes of Organizational Theory and Research: Using the Case of China to Illustrate National Contingency," Management Science, INFORMS, vol. 40(1), pages 56-71, January.
    12. Eva Paus & Nola Reinhardt & Michael Robinson, 2003. "Trade Liberalization and Productivity Growth in Latin American Manufacturing, 1970-98," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 6(1), pages 1-15.
    13. Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995. "How Does Foreign Direct Investment Affect Economic Growth?," NBER Working Papers 5057, National Bureau of Economic Research, Inc.
    14. Trevino, Len J. & Daniels, John D., 1995. "FDI theory and foreign direct investment in the United States: a comparison of investors and non-investors," International Business Review, Elsevier, vol. 4(2), pages 177-194, June.
    15. Sobel, Andrew C., 2002. "State institutions, risk, and lending in global capital markets," International Business Review, Elsevier, vol. 11(6), pages 725-752, December.
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