'Near-Home Bias' in Foreign Direct Investments
49 Pages Posted: 14 Mar 2009 Last revised: 14 May 2014
Date Written: September 12, 2010
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: Suggested Citation