Pro-market reforms, national culture, and internationalization: A cross-country analysis of EEFs

Abstract

This study contributes to the institution-based view of the firm by examining how informal institutions influence the relationship between pro-market reforms and the degree of internationalization of emerging economy firms. We posit that firms’ response to pro-market reforms depends upon the national culture they are embedded in. Specifically, we conjecture that the two dimensions of national culture — uncertainty avoidance and individualism — shape firms’ perceptions of pro-market reforms, thus impacting the relationship between pro-market reforms and firm internationalization. Using a sample of 44,119 firm-year observations for 6,449 unique firms across 30 emerging economies between 1996 and 2018, our findings show that pro-market reforms have a positive effect on firm internationalization, but this effect is weaker in more uncertainty avoiding cultures and stronger in more individualistic cultures. Our study provides valuable insight into how national culture can shape the internationalization of firms and has useful theoretical and policy implications.