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Egalitarianism, Cultural Distance, and Foreign Direct Investment: A New Approach

Author

Listed:
  • Jordan I. Siegel

    (Harvard Business School, Boston, Massachusetts 02163)

  • Amir N. Licht

    (Radzyner School of Law, Interdisciplinary Center Herzliya, Herzliya 46150, Israel)

  • Shalom H. Schwartz

    (The Hebrew University of Jerusalem, Jerusalem 91905, Israel; and National Research University–Higher School of Economics, Moscow 10100, Russia)

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 nonfinancial stakeholders, such that national differences in these egalitarianism-related features may affect firms’ international expansion decisions.

Suggested Citation

  • Jordan I. Siegel & Amir N. Licht & Shalom H. Schwartz, 2013. "Egalitarianism, Cultural Distance, and Foreign Direct Investment: A New Approach," Organization Science, INFORMS, vol. 24(4), pages 1174-1194, August.
    • Handle: RePEc:inm:ororsc:v:24:y:2013:i:4:p:1174-1194
    DOI: 10.1287/orsc.1120.0776
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    References listed on IDEAS

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