Economic Orientation and Firms Capabilities around the World: Does Individualism and Collectivism Values Matter?

Abstract

Using data from 34 countries, this paper examines how each country's financial system and cultural ideology interact with globalization to impact the capability of firms to exploit external (i.e., capital and labor) and internal (i.e., research and development and intangible capital) advantages. Our results show that more culturally developed countries in terms of their financial, legal, and institutional framework are more prone to rely on internal competitive advantages. We also find that in the least technologically developed countries the acquisition of knowledge and the increase of transparency in financial markets are incentives for firms to rely more heavily on external competitive advantages.

Keywords: individualism and collectivism, national culture, globalization, firms' capabilities, financial system

JEL Classification: M21, F00, F23, J01