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'Near-Home Bias' in Foreign Direct Investments

49 Pages Posted: 14 Mar 2009 Last revised: 14 May 2014

Yaz Gulnur Muradoglu

Queen Mary University of London; City University London - Sir John Cass Business School

Mario Levis

City University London - Cass Business School

Kristina Vasileva

Westminster Business School

Date Written: September 12, 2010

Abstract

While economic factors have been found to explain foreign direct investments (FDI), there is still some ambiguity regarding the decisions on the choice of destination by multinational companies. Studies find considerable evidence to suggest that distance, physical, institutional, and cultural may also play an important role in the distribution of FDI. Using the “home bias” framework from the finance literature and the gravity model we utilise a large sample of bilateral FDI data for a large sample countries, including both developed and emerging markets, to examine the impact of physical, cultural and institutional distance on foreign direct investment flows of 1,867 unique bilateral county pairs over a 25 year period. We find strong empirical evidence of persistent near-home bias in FDI outflows.

Keywords: Home Bias, Foreign Direct Investment, FDI, Psychic Distance, Panel Data

JEL Classification: C33, F21, F23, O50

Suggested Citation

Muradoglu, Yaz Gulnur and Levis, Mario and Vasileva, Kristina, 'Near-Home Bias' in Foreign Direct Investments (September 12, 2010). Available at SSRN: https://ssrn.com/abstract=1359168 or http://dx.doi.org/10.2139/ssrn.1359168

Yaz Gulnur Muradoglu

Queen Mary University of London ( email )

Francis Bancroft Building
Mile End Road
London, E1 4NS
United Kingdom

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 7040 0124 (Phone)
+44 20 7040 8853 (Fax)

Mario Levis

City University London - Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
4420 70408635 (Phone)

Kristina Vasileva (Contact Author)

Westminster Business School ( email )

35 Marylebone Road
London NW1 5LS
United Kingdom

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