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Outward foreign direct investment as escape response to home country institutional constraints

Author: Witt, Michael A. ; Lewin, Arie Y.INSEAD Area: Economics and Political ScienceIn: Journal of International Business Studies, vol. 38, no. 4, 2007 Language: EnglishDescription: p. 579-594.Type of document: INSEAD ArticleNote: Please ask us for this itemAbstract: In this perspective paper, we argue that outward foreign direct investment (OFDI) undertaken as escape response to perceived misalignment between firm needs and home country institutional conditions represents an important but under-explored phenomenon in the international business (IB) literature. We propose that in advanced industrialized nations, the extent of OFDI as escape is likely to rise with the extent of societal coordination in the political economy. Societal coordination is associated with relatively slower rates of institutional adjustment and thus with relatively greater prevalence of misalignments that may drive OFDI. We illustrate the face validity of our argument and lay out the implications for future research in IB.
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In this perspective paper, we argue that outward foreign direct investment (OFDI) undertaken as escape response to perceived misalignment between firm needs and home country institutional conditions represents an important but under-explored phenomenon in the international business (IB) literature. We propose that in advanced industrialized nations, the extent of OFDI as escape is likely to rise with the extent of societal coordination in the political economy. Societal coordination is associated with relatively slower rates of institutional adjustment and thus with relatively greater prevalence of misalignments that may drive OFDI. We illustrate the face validity of our argument and lay out the implications for future research in IB.

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