Asymmetric Cultural Proximity and Greenfield FDI

50 Pages Posted: 30 May 2018

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

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2018

Abstract

This paper investigates the role of asymmetric cultural proximity (CP) on greenfield foreign direct investment (FDI). We build a conceptual framework that explicitly accounts for cultural attractiveness as an asymmetric dimension within a broad notion of CP. We revisit the existing supply/origin-side theories of bilateral FDI to derive a gravity equation suited for testing the impact of (i) the attractiveness of destination’s culture for citizens in the origin country and (ii) the attractiveness of origin's culture for individuals inn the destination economy. While the role of the former direction of CP is well understood in the literature, we propose new mechanisms to rationalize that of the latter. We use exports and imports of cultural goods to proxy for the two directions of asymmetric and time-dependent CP in the same empirical specification. The econometric analysis confirms a positive role of asymmetric CP as a determinant of Greenfield FDI. Moreover, it suggests a stronger investment effect of the origin’s culture attractiveness for the destination country. Finally, it provides support for the mechanisms proposed in the theoretical discussion.

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

JEL Classification: F14, F21, F23

Suggested Citation

Fiorini, Matteo and Giovannetti, Giorgia and Lanati, Mauro and Santi, Filippo, Asymmetric Cultural Proximity and Greenfield FDI (January 1, 2018). Centro Studi Luca d'Agliano Development Studies Working Paper No. 434, Available at SSRN: https://ssrn.com/abstract=3176617 or http://dx.doi.org/10.2139/ssrn.3176617

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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