The Role of Host Country Networks in Foreign Investment Location Decisions: Interfaces All Over

Abstract

Extent theory emphasizes the role of host country factors and home-host countries’ ‘distance’ on the choice of foreign investment location (FIL). This study argues host country networks constitute a third set of drivers of FIL choice. Host country networks in general (HCN), and more specifically host country investment networks (HCINs) are fundamental to multinational enterprises’ (MNEs) FIL choices. HCINs signal the potential benefits of investing in the hst country and channel knowledge and information about investment opportunities in that country and potential partners. HCINs also channel information and knowledge about third countries within the HCIN facilitating the evaluation of future investments into these third countries. HCINs also increase the attractiveness of the host country as a ‘regional’ base. We hence argue that the relative propensity to invest into a host country (RPI) is positively associated with HCIN. This hypothesis is tested using nearly half a million firm investment data aggregated to measure the impact of HCIN on RPI between more than 24,000 country dyads. The results support the importance of HCN to FIL choices.