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Direct and indirect influence of national culture on foreign direct investment

Author

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  • Izadi, Selma
  • Rashid, Mamunur
  • Izadi, Parviz

Abstract

This study investigates whether extending cultural dimensions leads to different conclusions about foreign direct investment (FDI) inflows. We consider data from 33 developing and developed countries from 2001 to 2017. Several proxies for traditional FDI determinants are considered alongside proxies for financial channels and six-dimensional (6-D) measures of Hofstede’s national culture. The study employs a host of tests based on ordinary least squares, random effects, two-stage GMM, panel vector autoregressive, and estimated generalized least squares tests. Our results indicate the strong influences of economic growth, financial and trade openness, and three cultural variables on FDI inflow in the selected countries. Concerning culture, nations with lower “masculinity” and higher “individualism” and “indulgence” scores attract more FDIs. After controlling for economic growth endogeneity and employing cultural factors as instrumental variables, we conclude that culture affects FDI inflows indirectly through economic growth.

Suggested Citation

  • Izadi, Selma & Rashid, Mamunur & Izadi, Parviz, 2023. "Direct and indirect influence of national culture on foreign direct investment," Research in International Business and Finance, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:riibaf:v:66:y:2023:i:c:s0275531923001630
    DOI: 10.1016/j.ribaf.2023.102037
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    More about this item

    Keywords

    FDI inflows; Financial channel; Hofstede culture; Instrumental variable estimation;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Z1 - Other Special Topics - - Cultural Economics
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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