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The impact of Institutional Distance on FDI inflows in the Czech Republic

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  • Pietro Andrea Podda

Abstract

This paper studies the impact of institutional distance on FDI inflows in a specific country, the Czech Republic. This study contributes to the literature on the importance of institutional distance between home and host country among the factors able to influence FDI. The novelty of our paper is that (1) we consider whether institutional distance matters also when the host country is already endowed with institutional standards relatively close to those of the main home countries of MNEs, and (2) we run separate investigations of home-host countries' institutional distance, distinguishing between institutionally safer and less safe home countries in comparison with the host ones. The Czech Republic has been chosen in view of these perspectives, as (1) it has traditionally been considered as one of the most developed markets among those emerged from the socialist experience, its level of institutional development is close to that of the various home countries of MNEs, and (2) besides hosting MNEs from home countries endowed with safer institutions, it receives a certain amount of FDI also from countries with a relatively less safe institutional environment. Our results challenge the previous literature, in the sense that institutional distance may actually be perceived as an opportunity, especially by MNEs from home countries with higher levels of institutional development. Indeed, MNEs from home countries with less safe institutions than Czech ones follow a more ambiguous pattern.

Suggested Citation

  • Pietro Andrea Podda, 2016. "The impact of Institutional Distance on FDI inflows in the Czech Republic," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2016(1), pages 3-14.
    • Handle: RePEc:prg:jnlaop:v:2016:y:2016:i:1:id:495:p:3-14
    DOI: 10.18267/j.aop.495
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    References listed on IDEAS

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    Cited by:

    1. Safet Kurtović & Nehat Maxhuni & Blerim Halili & Arta Maxhuni, 2024. "Effect of Host Country Determinants and Institutional Quality on Outward Foreign Direct Investment from Central, Eastern and South-Eastern Europe," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 13272-13308, September.

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    More about this item

    Keywords

    FDI; Institutions; institutional distance; Czech Republic; random effects; gravity model;
    All these keywords.

    JEL classification:

    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration

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