A political economy approach to FDIthe role of geopolitical and socio-cultural attraction in Spanish FDI

Resumen

ABSTRACT Research on the non-traditional determinants of FDI is in its infancy. In this context, the role played by geopolitical and socio-cultural factors at the home-host level has not been sufficiently explored. I seek to fill this gap by introducing an index of geopolitical and socio-cultural attraction (GPSCA). GPSCA captures multidimensional bilateral relations. This index is relevant for the study of North-South FDI and the location patterns of late investors. The methodology adopted is to test the GPSCA index through a country case study: Spanish outward FDI (1993-2012). After examining the concept of FDI and the problems inherent to its measurement, I present a study of long-run stylized FDI facts. I include a cluster analysis to assess the Spanish late investor profile. In the literature review, I address the lack of a unified theory of FDI determinants and identify the theoretical grounds to build the GPSCA index, as well as the variables used as regressors for the empirical test. The GPSCA index is built on five dimensions: socio-cultural interactions; diplomatic exchanges; historical legacies; migration stock, and defense alliances. I use an augmented gravity equation to test this index under cross-section and panel data specifications. The results demonstrate that economies that score higher in the GPSCA index have received a larger Spanish FDI volume. The incorporation of the GPSCA index, together with country-specific variables, enhances the analysis of the timing, location, and volume of Spanish outward FDI