Egalitarianism, Cultural Distance, and FDI: A New Approach
Organization Science, Forthcoming
35 Pages Posted: 17 Jan 2007 Last revised: 7 Jun 2012
Date Written: June 6, 2012
This study addresses an apparent impasse in the research on organizations’ responses to cultural distance. We posit that cross-country differences in egalitarianism — a cultural orientation manifested in intolerance for abuses of market and political power and support for protection of less powerful actors — affect multinational firms’ choices of destinations for foreign direct investment (FDI). Using historically motivated instrumental variables, we observe that egalitarianism distance has a negative causal impact on FDI flows. This effect is robust to a broad set of competing accounts, including the effects of other cultural dimensions, various features of the prevailing legal and regulatory regimes, other features of the institutional environment, economic development, and time-invariant unobserved characteristics of origin and host countries. We further show that egalitarianism correlates in a conceptually compatible way with an array of organizational practices pertinent to firms’ interactions with non-financial stakeholders, such that national differences in these egalitarianism-related features may affect firms’ international expansion decisions.
Keywords: FDI, global strategy, multinational corporations, culture, cultural distance, egalitarianism, environmental protection, regulatory arbitrage, Pollution Haven Hypothesis, entrepreneurship, bilateral investment treaties
JEL Classification: M10, F23, P51, Z10, L10, K32, K22
Suggested Citation: Suggested Citation