Does trust matter for foreign direct investment decisions?

Abstract

Factors affecting the investment decisions of multinational companies are heavily researched in the literature. However, the number of studies dealing with the socio-cultural characteristics of host countries among these factors is quite limited. Among the cultural characteristics affecting location decisions, one of the primary cultural characteristics is the general level of trust between individuals. In this scope, this chapter intends to research whether the general level of trust in a society has an effect on the location decisions of foreign investors. In line with this objective, an analysis will be conducted by employing the panel data method for 39 emerging market countries for the period between 1998 and 2011. According to the results of the study, a low general level of trust in the host country represents a significant disadvantage for the attraction of foreign direct investments.