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Is there a liability of localness? How emerging market firms respond to regulatory punctuations

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  • Perez-Batres, Luis A.
  • Eden, Lorraine

Abstract

In the 1990s, emerging economies all over the world deregulated, privatized and liberalized their domestic markets. These regulatory punctuations caused radical institutional changes for emerging market firms (EMFs). We argue that, for EMFs, regulatory punctuations created a liability of localness, parallel to the liability of foreignness that firms face when they go abroad. Whereas liability of foreignness comes from the differences caused by changing one's geographic place from 'here' to 'there'; liability of localness comes from changing one's point in time from 'then' (pre-exogenous regulatory shock) to 'now' (post-exogenous regulatory shock). In both cases, firms incur additional costs, and the ones that survive are ones that best develop strategies for coping with "being in a strange land". We apply our arguments to the Mexican banking industry, which was privatized and liberalized in the 1990s.

Suggested Citation

  • Perez-Batres, Luis A. & Eden, Lorraine, 2008. "Is there a liability of localness? How emerging market firms respond to regulatory punctuations," Journal of International Management, Elsevier, vol. 14(3), pages 232-251, September.
  • Handle: RePEc:eee:intman:v:14:y:2008:i:3:p:232-251
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    References listed on IDEAS

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    19. Mazhikeyev, Arman & Edwards, T. Huw & Rizov, Marian, 2015. "Openness and isolation: The trade performance of the former Soviet Central Asian countries," International Business Review, Elsevier, vol. 24(6), pages 935-947.
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