Foreign direct investment flows from the south to the east of the EU: dissecting the different effects of psychic distance stimuli. (1st January 2014)

• Record Type: Journal Article
• Authors: Jiménez, Alfredo; Palmero, Carmen; Jiménez, Juan Alfredo
• Is Part Of: European journal of international management. Volume 8:Number 3(2014)
• Page Start: 331
• Page End: 353
• Publication Date: 2014-01-01
• Subjects: foreign direct investment -- psychic distance -- multinational enterprises -- central and eastern Europe -- southern European economies; Management -- Periodicals; Organizational behavior -- Periodicals; International business enterprises -- Management -- Periodicals; Globalization -- Periodicals; 658.005
• Languages: English
• ISSNs: 1751-6757

Abstract

This paper examines the influence of psychic distance stimuli on foreign direct investment flows from countries located in the south of Europe towards the new members of the European Union from central and Eastern Europe. By applying panel data techniques, evidence of a negative relation is obtained for distance in democracy, whereas a positive one is obtained for per capita GDP and distance in education and industrial development, which demonstrates that these investment flows are characterised by an efficiency-seeking approach and low educational and technical requirements. This FDI motivation prompts firms to maximise cost advantages such as reduced salaries or input prices. Also interestingly, political risk does not seem an obstacle, in accordance with recent literature on political capabilities. The results highlight the fact that distance does not always constitute a barrier but an opportunity for the firm.