The institutional and cultural determinants of foreign direct investment in transition countries

Ben Atitallah Rihab, Ben Jedid

Abstract

The objective of this research is to analyze the factors which explain the evolution of foreign direct investment (FDI) in developing countries. More specifically, it aims at identifying the factors which have a significant impact on the attraction of the foreign direct investment, measuring their relative importance and proposing priority actions to be implemented in order to make developing countries more attractive. We will try to show that the economic, institutional and cultural factors in any country can play an important role in attracting foreign direct investment (FDI). Using dynamic panel data covering the period from 2001 to 2006 from 71 countries, we have found that along with the traditional findings on the traditional determinants of the foreign direct investment (FDI) cultural variables constitute significant factors that determine FDI inflow to transition countries. In particular, the hierarchical distance and individualism are cultural dimensions which press the foreign direct investment (FDI).