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Asymmetric Cultural Proximity and Greenfield FDI

Author

Listed:
  • Matteo Fiorini

    (RSCAS (European University Institute))

  • Giorgia Giovannetti

    (University of Florence and RSCAS (European University Institute))

  • Mauro Lanati

    (RSCAS (European University Institute))

  • Filippo Santi

    (University of Florence)

Abstract

This paper investigates the role of asymmetric cultural proximity (CP) on greenfield foreign direct investment (FDI). We build a conceptual framework that explicitly accounts for cultural attractiveness as an asymmetric dimension within a broad notion of CP. We revisit the existing supply/origin-side theories of bilateral FDI to derive a gravity equation suited for testing the impact of (i) the attractiveness of destination's culture for citizens in the origin country, and (ii) the attractiveness of origin's culture for individuals in the destination economy. While the role of the former direction of CP is well understood in the literature, we propose new mechanisms to rationalize that of the latter. We use exports and imports of cultural goods to proxy for the two directions of asymmetric and time-dependent CP in the same empirical specification. The econometric analysis confirms a positive role of asymmetric CP as a determinant of Greenfield FDI. Moreover, it suggests a stronger investment effect of the origin's culture attractiveness for the destination country. Finally, it provides support for the mechanisms proposed in the theoretical discussion.

Suggested Citation

  • Matteo Fiorini & Giorgia Giovannetti & Mauro Lanati & Filippo Santi, 2018. "Asymmetric Cultural Proximity and Greenfield FDI," Development Working Papers 434, Centro Studi Luca d'Agliano, University of Milano.
    • Handle: RePEc:csl:devewp:434
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    References listed on IDEAS

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    Cited by:

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    2. Di Ubaldo, Mattia & Gasiorek, Michael, 2022. "Non-trade provisions in trade agreements and FDI," European Journal of Political Economy, Elsevier, vol. 75(C).

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    More about this item

    Keywords

    Cultural proximity; Greenfield FDI; Cultural trade; Gravity model;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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