Host country cultural influences on foreign direct investment

Abstract

Abstract and Key Results This paper provides a novel perspective towards understanding the influence of host country culture on the location choices of foreign firms. We argue that host country cultural variables: uncertainty avoidance and trust, influence the location choices of foreign firms such that foreign firms prefer to invest in nations with (1) low levels of uncertainty avoidance and (2) high levels of trust. In addition to direct effects, we hypothesize that uncertainty avoidance moderates the relationship between host country trust and levels of foreign direct investment (FDI) such that the relationship between trust and FDI becomes weaker, as uncertainty avoidance increases. The results in a sample of 43 nations are supportive of the hypothesized main effect of uncertainty avoidance and the moderating effects, and partially supportive of the main effect of trust on FDI, after controlling for economic, human capital, and governance infrastructure variables.