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Trust and foreign ownership: Evidence from intra‐European foreign direct investments
Author(s) -
Da Rin Marco,
Di Giacomo Marina,
Sembenelli Alessandro
Publication year - 2019
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12378
Subject(s) - endogeneity , foreign direct investment , monetary economics , affect (linguistics) , capital (architecture) , business , economics , econometrics , macroeconomics , history , linguistics , philosophy , archaeology
We use a novel firm‐level dataset to test whether trust affects the volume and the ownership structure FDI across Europe. Our methodology deals with the endogeneity of trust from the investor to the recipient country. We expect such a trust measure to affect investment decisions, and the associated knowledge capital, differently across types of foreign investors. In particular, this effect is expected to be stronger for industrial investors who possess transferable knowledge capital. The data confirm our predictions. Higher trust increases the number and volume of FDIs, but also the probability of co‐investing with a partner from the recipient country.