Economic development, cultural differences and FDI

The literature has long analysed the effects of national cultural distance on the volume of cross-border FDIs. Considering the increase in significance of FDI originating from developing countries, this study compares the effect of cultural differences on the stock of FDI from and to countries of various levels of economic development to explain how economic development affects the impact of cultural distance on FDI. Results suggest that the cultural differences tend to be bigger barriers for multinationals from developing countries, but they also learn quickly how to deal with such differences.