Cross-national distance as an explanatory variable in international management: Fundamental challenge and solution

Although recent work provides insightful theoretical and practical suggestions for improving contextual distance research in international management, the fundamental problem with using distance indicators as explanatory variables remains too little recognized and largely unaddressed. This problem is that cross-national distance metrics partially identify host and/or home countries in one's sample, what I term location-identification. Location-identification can occur irrespective of the number of home/host countries considered and means that a distance indicator partly captures country fixed effects when used as an independent or explanatory variable. As a result, in empirical distance research, genuine distance effects are often confounded with country-specific measurement error in the dependent variable as well as with direct effects due to various home- or host-country features. I present empirical evidence on the pervasiveness of this critical challenge to cross-national distance research and propose a practical and effective solution for addressing it, which is to use “pure” distance indicators that are cleansed from confounding home- and host-location influences.