Egalitarianism and International Investment
22 Pages Posted: 13 Jan 2011 Last revised: 25 Aug 2011
Date Written: January 7, 2011
This study identifies how country differences on a key cultural dimension - egalitarianism - influence the direction of different types of international investment flows. A society's cultural orientation toward egalitarianism is manifested by intolerance for abuses of market and political power and a desire for protecting the weak and less powerful actors. We show egalitarianism to be based on exogenous factors including social fractionalization, dominant religion circa 1908 and war experience from the 19th century era of state formation. Controlling for a large set of competing explanations, we find a robust influence of egalitarianism distance on cross-national investment flows of bond and equity issuances, syndicated loans, and mergers and acquisitions. An informal cultural institution largely determined a century or more ago, egalitarianism exercises its effect on international investment via an associated set of consistent contemporary policy choices. But even after controlling for these associated policy choices, egalitarianism continues to exercise a direct effect on cross-border investment flows, likely through its direct influence on managers' daily business conduct.
Keywords: culture, informal institutions, social institutions, egalitarianism, cultural distance, international investment, cross-listing, foreign direct investment, mergers and acquisitions
JEL Classification: F21, F23, G32, G34, K22, K4, Z13
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