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

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

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.

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Article provided by Elsevier in its journal Journal of International Management.

Volume (Year): 14 (2008)
Issue (Month): 3 (September)
Pages: 232-251

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Handle: RePEc:eee:intman:v:14:y:2008:i:3:p:232-251
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  1. Mauro F. Guillén & Adrian E. Tschoegl, 1999. "At Last the Internationalization of Retail Banking? The Case of the Spanish Banks in Latin America," Center for Financial Institutions Working Papers 99-41, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Wilson, Berry & Saunders, Anthony & Caprio, Gerard, Jr, 2000. "Mexico's Financial Sector Crisis: Propagative Linkages to Devaluation," Economic Journal, Royal Economic Society, vol. 110(460), pages 292-308, January.
  3. Anne Krueger & Aaron Tornell, 1999. "The Role of Bank Restructuring in Recovering from Crises: Mexico 1995-98," NBER Working Papers 7042, National Bureau of Economic Research, Inc.
  4. Ali Ataullah & Hang Le, 2004. "Financial repression and liability of foreignness in developing countries," Applied Economics Letters, Taylor & Francis Journals, vol. 11(9), pages 545-549.
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  6. John H Dunning, 1995. "Reappraising the Eclectic Paradigm in an Age of Alliance Capitalism," Journal of International Business Studies, Palgrave Macmillan, vol. 26(3), pages 461-491, September.
  7. Yadong Luo & Mike W Peng, 1999. "Learning to Compete in a Transition Economy: Experience, Environment, and Performance," Journal of International Business Studies, Palgrave Macmillan, vol. 30(2), pages 269-295, June.
  8. L. Randall Wray & Stephanie Bell, 2004. "Introduction," Chapters, in: Credit and State Theories of Money, chapter 1 Edward Elgar.
  9. Armen A. Alchian, 1950. "Uncertainty, Evolution, and Economic Theory," Journal of Political Economy, University of Chicago Press, vol. 58, pages 211.
  10. Julio O de Castro & Klaus Uhlenbruck, 1997. "Characteristics of Privatization: Evidence from Developed, Less-Developed and Former Communist Countries," Journal of International Business Studies, Palgrave Macmillan, vol. 28(1), pages 123-143, March.
  11. Gruben, William C & Welch, John H, 1996. "Default Risk and Dollarization in Mexico," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(3), pages 393-401, August.
  12. Zaheer, Srilata, 2002. "The liability of foreignness, redux: a commentary," Journal of International Management, Elsevier, vol. 8(3), pages 351-358.
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