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The role of experience in FDI location choice: endogenous risk, exogenous risk, and high-level government visits

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posted on 2023-06-09, 02:55 authored by Peter J Buckley, Liang Chen, L Jeremy Clegg, Hinrich Voss
FDI literature has presented consistent evidence that firm experience plays a promoting role in foreign entry decisions. This conclusion, however, is contested by recent research. We revisit the experience-as-learning argument in location choice in three respects. First, we examine the boundary of experiential learning in mitigating political risks, and argue that the established learning mechanism only applies to endogenous risk, but not exogenous risk. Second, we reveal unobserved heterogeneity emanating from the process of learning, and posit that there are residual variations in firms’ responses to endogenous risk after the effect of experience is accounted for. Third, we theorize government visit as signaling external assurance about the investment location to potential investors, and discuss how experiential learning discounts this signaling effect. Our fixed effects and random parameter analyses of a sample of Chinese manufacturing multinationals support the hypotheses and shed new light on FDI location choice.

History

Publication status

  • Published

File Version

  • Accepted version

Presentation Type

  • paper

Event name

Academy of International Business (AIB) 2016 Annual Meeting

Event location

New Orleans

Event type

conference

Event date

27-30 Jun 2016

Department affiliated with

  • Business and Management Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2016-09-15

First Compliant Deposit (FCD) Date

2016-09-15

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