The location decisions of multinationals and the cultural link: evidence from Spanish direct investment abroad

Abstract

We examine the way in which differences in language and culture may affect direct investment decisions. We use a discrete choice approach to model the location decisions of multinationals in which cultural links, language differences, distance and market access are accounted for. This model is used to study the determinants of the location decisions of Spanish multinationals over the period 1988-1997. Cultural ties, including language, are found significantly to affect the location decisions of Spanish firms abroad. These ties, also explain the leading position of Spanish multinationals in Latin American countries compared to more advanced home countries such as the US, Germany and the UK. The specific advantage of Spanish multinationals together with the rapid economic development of the Spanish economy, which has traditionally been a large FDI-recipient, tend to corroborate the view that intangible assets such as culture and language proximity do matter in understanding net outward investment patterns.