Cross-national Distance and FDI: The Moderating Role of Host Country Local Demand

In this paper, we draw on the demand-side perspective to suggest that host country local demand influences the relationship between cross-national distance and foreign direct investment (FDI). Using FDI outflows from the United States to a cross-sectional sample of 110 host countries over the period of 2006–2011, we find that distance negatively influences FDI, largely confirming previous research. However, our results also suggest that a host country's local demand mitigates the negative relationship between geographic, cultural and administrative distance and FDI outflows, while it aggravates the negative effect of political distance on FDI.