Institutional distance and FDI: Chinese and US investment in Africa

TL;DRAbstract

Using data on China and US FDI flows to 17 African countries over seven years, I analyse the effect of institutional distance on foreign investment location decisions. Institutional distance is a relatively under-researched topic and thus requires more rigorous empirical testing. From a series of OLS estimations the results indicate that distance on the rule of law dimension is important for Chinese investors, whereas political stability distance is related to US FDI in Africa. However, in each case no other institutional variables are found to influence FDI. Although, institutional distance overall doesn’t appear to be a robust determinant of FDI, these two key findings are important first steps to further investigating this new construct in the African investment context.

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