How Does Religion Bias the Allocation of Foreign Direct Investment? The Role of Institutions

International Economics

26 Pages Posted: 3 Feb 2013

See all articles by Jérôme Hergueux

Jérôme Hergueux

Harvard University - Berkman Center for Internet & Society

Date Written: October 1, 2011

Abstract

We construct a gravity model of worldwide foreign direct investment stock (FDI) in order to study the effect of religion on FDI allocation. We establish empirically that both bilateral religious similarity and bilateral religious diversity foster FDI at the country pair level. These apparently contradicting results confirm an empirical puzzle that has already emerged in the literature, particularly in the case of trade in goods. We investigate whether the answer to this puzzle could lie on the fact that the effect of these two variables play for different types of countries, depending on the level of efficiency of their institutions.

Keywords: culture, religion, institutions, trust, foreign direct investment

JEL Classification: F21, F23, 050, Z12

Suggested Citation

Hergueux, Jérôme, How Does Religion Bias the Allocation of Foreign Direct Investment? The Role of Institutions (October 1, 2011). International Economics, Available at SSRN: https://ssrn.com/abstract=2210566

Jérôme Hergueux (Contact Author)

Harvard University - Berkman Center for Internet & Society ( email )

23 Everett Street
Cambridge, MA 02138
United States

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