Institutional distance and foreign direct investment: an asymmetric approach

Abstract

This paper analyses the effects of distance asymmetries on Portuguese inward foreign direct investment (FDI) from relatively more, and less, developed countries through the lenses of institutional distance. We developed a panel dataset composed of 35 origins of Portuguese FDI during the period 2003-2015 and analysed it through a series of multiple regression techniques. Results suggest that, when investing in Portugal, countries with lower levels of development are not affected by distance variations. Conversely, it seems that FDI from more developed countries is influenced by several dimensions of distance. This paper contributes to the understanding of asymmetries in institutional distance, emphasising the need for purely asymmetric distance constructs in IB research. Also, it provides the framework for assessing asymmetries with traditional, absolute measured, distance constructs.