Growth and foreign direct investment absorption across cultural dimensions
International Journal of Social Economics
ISSN: 0306-8293
Article publication date: 22 July 2020
Issue publication date: 5 August 2020
Abstract
Purpose
Injections of foreign direct investment (FDI) are often followed by injections of foreign culture which may not be well received among the local population. If this is the case, culture may impede any positive externalities from FDI. On the other hand, if the people of the host country embrace injections of FDI, this may lead to boosts in not only short-run factors of production but also longer-term technological spillovers. We measure what role cultural make-up of a country plays on the effect of FDI on growth in GDP.
Design/methodology/approach
Using values system data from the World Values Survey (WVS), and socioeconomic data from the World Bank, we estimate and plot the marginal effect of FDI on growth as a function of a country's values system for a panel of 73 countries over a span of three decades.
Findings
We find that the marginal effect of FDI on growth in GDP differs across varying degrees of cultural values, even after adjusting for level of development. In other words, our analysis indicates that a country's cultural norms do indeed affect foreign investment's impact on economic growth.
Originality/value
To date there is no research that systematically assesses the effect that cultural make-up has on the marginal effect of FDI on growth. We go beyond the use of isolated cultural variables by using data on cultural dimensions that account for most of the observed cultural differences between countries. We believe our findings will work as a launchpad for more novel ways to capture country heterogeneity in growth research.
Peer review
The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-09-2019-0549.
Keywords
Citation
Romero, A.A. and Edwards, J.A. (2020), "Growth and foreign direct investment absorption across cultural dimensions", International Journal of Social Economics, Vol. 47 No. 8, pp. 1003-1022. https://doi.org/10.1108/IJSE-09-2019-0549
Publisher
:Emerald Publishing Limited
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