Egalitarianism, Cultural Distance, and FDI: A New Approach

Organization Science, Forthcoming

35 Pages Posted: 17 Jan 2007 Last revised: 7 Jun 2012

See all articles by Jordan I. Siegel

Jordan I. Siegel

University of Michigan

Amir N. Licht

Interdisciplinary Center (IDC) Herzliyah - Radzyner School of Law; European Corporate Governance Institute (ECGI)

Shalom H. Schwartz

Hebrew University of Jerusalem - Department of Psychology; National Research University Higher School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 6, 2012

Abstract

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

Siegel, Jordan I. and Licht, Amir N. and Schwartz, Shalom H., Egalitarianism, Cultural Distance, and FDI: A New Approach (June 6, 2012). Organization Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=957306 or http://dx.doi.org/10.2139/ssrn.957306

Jordan I. Siegel (Contact Author)

University of Michigan ( email )

Ann Arbor, MI
United States

Amir N. Licht

Interdisciplinary Center (IDC) Herzliyah - Radzyner School of Law ( email )

P.O. Box 167
Herzliya, 46150
Israel
972-9-952-7332 (Phone)
952-9-9513323 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
952-9-9513323 (Fax)

HOME PAGE: http:/www.ecgi.org

Shalom H. Schwartz

Hebrew University of Jerusalem - Department of Psychology ( email )

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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