Culture Matters; Extending Dunning's Eclectic Paradigm to Unpack the Role of Culture as an Institutional Location Advantage and the Interplay with Formal Institutions

2 Pages Posted: 10 Sep 2024

See all articles by Carmen Stoian

Carmen Stoian

University of Kent - Canterbury Campus

Max Joschka Woeste

affiliation not provided to SSRN

Zaheer Khan

University of Aberdeen

Abstract

The impact of formal institutions on foreign direct investment (FDI) location choice has been thoroughly examined, yet the interplay between formal and informal institutions such as culture remains relatively unexplored. This paper analyses the direct effects of host country culture- a key institutional location advantage-  on FDI and the moderating effect of formal institutions on this relationship. Our analysis of FDI flows in 60 countries over 15 years (2002-2016) shows that culture matters: individualism, uncertainty avoidance and indulgence, respectively, influence FDI positively, while power distance and long-term orientation affect FDI negatively. Contrary to our expectations, we find that strong formal institutions- captured by government effectiveness- strengthen the relationship between FDI and host country culture (i.e.  power distance,  individualism, uncertainty avoidance, long-term orientation and indulgence). We extend Dunning’s eclectic paradigm with insights from North’s institutional theory and Hofstede’s cultural dimensions and we draw implications for theory and practice.

Keywords: inward foreign direct investment, FDI, institutions, institutional theory, Hofstede's cultural dimensions, informal institutions, culture, the eclectic paradigm, the OLI

Suggested Citation

Stoian, Carmen and Woeste, Max Joschka and Khan, Zaheer, Culture Matters; Extending Dunning's Eclectic Paradigm to Unpack the Role of Culture as an Institutional Location Advantage and the Interplay with Formal Institutions. Available at SSRN: https://ssrn.com/abstract=4952078 or http://dx.doi.org/10.2139/ssrn.4952078

Carmen Stoian (Contact Author)

University of Kent - Canterbury Campus ( email )

Keynes College
Canterbury, Kent CT2 7NP
United Kingdom

Max Joschka Woeste

affiliation not provided to SSRN ( email )

No Address Available

Zaheer Khan

University of Aberdeen ( email )

Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

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