It is well known that the growth of multinational enterprise (MNE) activity in the form of foreign direct investment (FDI) has grown at a faster rate than most other international transactions, particularly trade flows between countries ( US Census 2001). While there has been much discussion in the academic community debate on the interdependence of MNEs and culture, so far little economic analysis has discussed these issues. Much of this reluctance originates from the perception that culture is broad and undefined, making it difficult to design testable and conclusive hypotheses. Without testable hypotheses, there is no role for culture in economics (Greif, 1994, 2006). However, in recent years, better techniques and more data have made it possible to identify systematic differences in people’s preferences and beliefs and to relate them to various measures of cultural legacy. These developments suggest an approach to introducing culturally-based explanations into economics that can be tested and may substantially enrich our understanding of economic phenomena. This paper investigates this approach and its achievements, then shows the joint evolution of MNE activity in the form of FDI and cultural Diversity.
We used a previously constructed broad cross-country data set for this study. The data include national-accounts variables and an array of other economic, culture, and social indicators. Principal sources of data are the World Bank’s World Development Indicators(2002), <http://freedomhouse.org>, and the World Values Survey(WVS).
This paper explores and validate the joint evolution of multinational enterprises and cultural diversity and opens up the larger issue of the quite varying motivations for foreign direct investment which are ignored to a large degree in academic literature. Specifically, the paper attempts to address three key issues: 1) culture, preferences and economic outcomes, 2) identifies the external factors that are likely determinants of the location and magnitude of FDI by MNEs, and 3) evaluates the effect of culture on MNE activity in the form of FDI.
References
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World Bank, World Development Indicators, CD-ROM, Washington, DC, 2002.
World Value Survey. Available at: www.worldvaluessurvey.org/