An Exploratory Examination of the Social Capital and FDI Linkage and the Moderating Role of Regulatory Quality: A Cross-Country Study

Despite the urge for broader macro-level examinations of the distinct social constructions within which economic activities take place, numerous national-level studies of the determinants of foreign-invested firms have paid little attention to the roles played by social capital and its contingent value in affecting foreign direct investment (FDI) inflows. Drawing on the logic of social capital and institutional theory, this article seeks to offer a complementary, rather than a substitutional, explanation of FDI by examining empirically the national-level impacts of social capital (trust and associative activity) on FDI and the moderating role of regulatory quality in this relationship. Based on the data of 165 country series from the World Value Survey and the World Bank, our analytical results supported the hypotheses that the rich endowments of social capital positively contributed to the attraction of FDI and such effects are also contingent on the regulatory quality that further strengthened such relationships. These findings also suggest strong implications for managers implementing an FDI and market entry strategy. (C) 2011 Wiley Periodicals, Inc.