Institutions and inflows of foreign direct investment: a fuzzy-set analysis

This study addresses the essential question of causal complexity and diversity related to the influence of institutions on the direct investments (FDI) of multinational enterprises. Using a relatively new methodological approach of fuzzy-set analysis, and 47 host countries from the period 1999 to 2003, the paper analyses how and why countries with different degrees of membership in different institutional constraints either attract or do not attract FDI. The findings show that institutional factors have diverse influences. Similar institutions may even be associated with different outcomes if different regional categories of countries are examined. Countries may neither be attractive nor unattractive owing to the presence or absence of a single institutional factor. Instead, the outcome usually results from a combination of institutional conditions. Moreover, there typically are several possible paths to a specific outcome. The study confirms some of the propositions of previous theory, but, most importantly, it explains why earlier research has provided conflicting conclusions related to institutional factors. The study also offers an approach for future international business research to apply fuzzy-set methods and develop mid-range theories.