Asymmetric Cultural Proximity and Greenfield FDI

57 Pages Posted: 15 Nov 2017

See all articles by Matteo Fiorini

Matteo Fiorini

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Giorgia Giovannetti

Università di Firenze

Mauro Lanati

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Filippo Santi

University of Florence

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Date Written: November 2017

Abstract

This paper investigates the role of cultural proximity (CP) on greenfield foreign direct investment (FDI). We build a conceptual framework that explicitly accounts for the asymmetric dimensions in the cultural relationship between two countries, and single out a symmetric element (similarity) and an asymmetric one (attractiveness) within a broad notion of CP. We use bilateral trade in cultural goods to proxy for asymmetric and time-dependent CP. We revisit the existing supply/origin-side theories of bilateral FDI to derive a gravity equation suited for testing the impact of both directions of asymmetric CP. To this end, we introduce several ‘destination-side’ mechanisms to rationalize the potential role of the origin’s culture attractiveness for the country that hosts the investment project. The econometric analysis confirms a positive role of asymmetric CP as a determinant of Greenfield FDI, and suggests a stronger contribution of the destination-side channels.

Keywords: cultural proximity; greenfield FDI; cultural trade; gravity model

JEL Classification: F14; F21; F23; Z10

Suggested Citation

Fiorini, Matteo and Giovannetti, Giorgia and Lanati, Mauro and Santi, Filippo, Asymmetric Cultural Proximity and Greenfield FDI (November 2017). Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2017/56, Available at SSRN: https://ssrn.com/abstract=3070282 or http://dx.doi.org/10.2139/ssrn.3070282

Matteo Fiorini (Contact Author)

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Giorgia Giovannetti

Università di Firenze ( email )

Piazza di San Marco, 4
Florence, 50121
Italy

Mauro Lanati

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Filippo Santi

University of Florence ( email )

Piazza di San Marco, 4
Florence, 50121
Italy

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