What determines distrust
in foreign investors?
Understanding the liability of foreignness
Dissertation Msc Double Degree Advanced International Business Management
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What determines distrust in foreign
investors?
Understanding the liability of foreignness
Name: Rianne Reimert
Student number: S2241595
b3002704
Supervisors: André van Hoorn &
Mitchel Ness
University of Groningen
Faculty of economics and business
MSc International Business and Management
Newcastle University Business School
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Abstract
The liability of Foreignness refers to the disadvantages a foreign firm faces compared to a local firm. LoF has four sources, namely: 1) costs that are related with physical distance (e.g. transportation, coordination); 2) costs that have to do with the lack of familiarity with the host country environment; 3) costs that arise due to lack of legitimacy in the host country; and 4) costs that are related due to the home country environment regulations. This thesis provides an in-depth analysis of the 3rd source, lack of legitimacy, by considering the factors that make citizens of a host country more or less trusting of foreign investors. Seven hypotheses were formulated and tested, using individual-level data, like income or education level, of the Life in Transition Survey (2010) and additional country-level data for uncertainty avoidance, ethnocentric culture and income group. A sample of 28420 respondents originated from 35 countries spread through the whole of Europe is used to determine the factors that are of influence on trust or distrust in foreign investors. The findings reveal, in compliance with the literature review, that higher levels of: individual income-level; financial, economic, and household improvement; and life, financial, and economic satisfaction reduced distrust in foreign investors. Furthermore, high uncertainty avoidance indicates high levels of distrust in foreign investors. Future research can look at how trust in foreign investors can be built.
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Table of content
Abstract ... 3
List of Tables and Figures ... 6
1. Introduction ... 7
2. Literature review ... 10
2.1 Theoretical background on LOF ... 10
2.2 Lack of legitimacy ... 13
2.3 Distrust in foreign investors ... 16
2.3.1 ‘Winners’ and ‘losers’ of globalization ... 17
2.3.2 Uncertainty avoidance and radius of trust ... 19
2.4 Summary ... 22
3. Data and method ... 24
3.1 Sample and data collection ... 24
3.2 Variables ... 26
3.2.1 Dependent variable ... 27
3.2.2 Key Independent variables ... 27
3.2.3 Control variables ... 29
3.2 Analytical strategy ... 29
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3.3.2 Descriptive statistics and correlation ... 30
4 Empirical results ... 32 4.1 Baseline results ... 32 4.1.1 Individual-level determinants ... 32 4.1.2 Country-level determinants ... 35 4.2 Robustness check ... 40 4.3 Summary ... 44
5 Discussion and conclusion ... 45
5.1 Limitations and future research ... 46
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List of Tables and Figures
Figure 2.1 Conceptual model p. 23
Table 2.1 Summary of Hypotheses p. 23
Table 3.1 Sample per country p. 25
Table 3.2 Descriptive statistics p. 30
Table 3.3 Correlation statistics p. 31
Table 4.1 Individual-level determinants of distrust in foreign investors p. 34 Table 4.2 Country-level determinants of distrust in foreign investors p. 36 Table 4.3 Individual- and country- level determinants of distrust in
foreign investors p. 39
Table 4.4 Individual-level determinants of distrust in foreign investors
with control variable ‘general trust’ p. 40 Table 4.5 Country-level determinants of distrust in foreign investors with
control variable ‘general trust’ p. 41
Table 4.6 Individual- and country- level determinants of distrust in
foreign investors with control variable ‘general trust’ p. 43
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1. Introduction
Liability of foreignness (LOF) refers to the disadvantage that foreign firms face compared to domestic rivals in the host country, which can arise from different sources. While recognized as one of the core constructs in international business, little is known about the deeper causes of LOF. LOF can be defined as “the costs of doing business abroad that result in a competitive disadvantage for an MNE subunit” (Zaheer 1995: 342). Eden and Miller (2004) refute previous literature stating that LOF is exactly the same as the costs of doing business abroad (CDBA), which was first mentioned by Hymer (1976). Instead they believe LOF is a part of CDBA. Where CDBA addresses both the market-driven and social costs of doing business in a foreign country, the focus of LOF lies primarily in the social costs. LOF addresses the costs that arise due to social factors which foreign firms encounter, but local firms do not (e.g. Mezias 2002; Zaheer 2002; Eden and Miller 2004). Researchers have been trying to find answers as to why a firm faces disadvantages in a foreign environment and how they can conquer them.
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suggest that when perceptions come from deep within a culture, like trust, these can be of great influence on economic factors. Past studies on the relationship of trust and lack of legitimacy mainly focussed on trust or distrust between suppliers and firms or between foreign managers and local employees (Doney, Cannon, and Mullen 1999; Kostova and Roth 2002; Murphy and Tocher 2011; Monfardini, Barretta, and Ruggiero 2013). However, distrust of citizens in foreign investors has not yet been investigated. This thesis is therefore distinctive, as it argues that trust in foreign investors is an important determinant for establishing external legitimacy in the host country environment, and thus for the survival of a foreign firm.
From the literature, seven hypotheses are formulated as to why people may feel hostile towards and distrusting of foreign investors. These hypotheses stem from different factors, which can be divided in two broad areas, country-level determinants and individual-level determinants. This thesis examines factors that may explain distrust in foreign investors. The individual-level determinants are primarily derived from the globalization perspective, there are so called ‘winners’ and ‘losers’ of globalization, this may influence people’s opinion toward a global world. The country-level determinants are based on ethnocentrism, uncertainty avoidance and income group of the country.
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2. Literature review
Past research has explained LOF from different theories (namely DiMaggio and Powell 1983;
Davis, Desai, and Francis 2000; Kostova and Roth 2002; Kostova, Roth, and Dacin 2008;
Spencer and Gomez 2011; Arslan 2012). Section 2.1 provides a theoretical background on
LOF. Lack of legitimacy is a source of LOF identified by Zaheer (1995), to overcome LOF a firm
needs to be seen as legitimate in the host country, section 2.2 goes into depth about this.
Section 2.3 discusses what might determine distrust in foreign investors, including a review
on the possible winners and losers of globalization. Finally a brief summary of this chapter is
given in sector 2.4.
2.1 Theoretical background on LOF
This section provides a theoretical background on the concept of Liability of Foreignness
(LOF) through reviewing literature about the sources of LOF, coercive, mimetic and normative
pressures, cultural distance, and cognitive, regulative and normative pillars.
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foreign, these costs can arise from unfamiliarity, discriminatory, and relational hazards. Unfamiliarity hazards have to do with the foreign firm’s lack of knowledge and understanding of the host country environment. Whereas discriminatory hazards have to do with the way the government, suppliers, and citizens treat the foreign firm, mainly due to their lack of knowledge and understanding of the foreign firm. The relational hazards have to do with uncertainties and its effect on managing relationships with other organizations, suppliers, or stakeholders (Eden and Miller 2004). Zaheer (1995) identified four sources of LOF, namely physical distance, lack of familiarity host country environment, lack of legitimacy, and costs are related due to the home country environment regulations.
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the local institutional pressures, than to the pressures they receive from their parent company.
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Research has shown that more FDI inflow can be suspected in a steady and strong market supporting institutional environment (Arslan 2012: 116). Such an environment has a country institutional profile that is unique for that country and can be divided in three pillars (Scott 1995; Kostova 1997): regulative, cognitive and normative. The regulatory pillar “reflects the existing laws and rules in a particular national environment that promote certain types of behaviours and restrict others” (Kostova 1997: 180) and can be linked to coercive pressures (Arslan 2012). The cognitive pillar “reflects the widely shared social knowledge and cognitive categories (for instance, schemata, stereotypes) used by the people in a given country (Markus & Zajonc 1985) that influence the way a particular phenomenon is categorized and interpreted” (Kostova and Roth 2002: 217) and can be linked to the mimetic pressures (Arslan 2012). The normative pillar “reflects the values, beliefs, norms, and assumptions about human nature and human behaviour held by the individuals in a given country” (Kostova and Roth 2002: 217) and is logically related to normative pressures (Arslan 2012: 112). Differences or similarities between these pillars in different countries determine institutional distance. Luo, Shenkar, and Nyaw (2002) argue that costs of LOF can come from physical distance, cultural distance and institutional distance. The greater these differences are, the higher LOF (Kostova and Zaheer 1999; Eden and Miller 2004), because it is more difficult to built external legitimacy.
2.2 Lack of legitimacy
This section provides an in-depth analyses of lack of legitimacy. Furthermore it explores trust
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One of the four sources of LOF is lack of legitimacy. For a firm to survive, it needs to be seen as legitimate by its environment (Deephouse 1990; Kostova and Roth 2002; Kostova, Roth, and Dacin 2008; Spencer and Gomez 2011). This is true for both local and foreign firms, however, Eden and Miller (2004) argue that foreign firms face different legitimacy standards than local firms in favour of the latter. Suggesting that foreign firms have to put more effort into becoming legitimate, thereby face higher costs in increasing their external legitimacy than local firms. There are several definitions of legitimacy, Zimmerman and Zeitz (2002: 416) define legitimacy as “a relationship between the practices and utterances of the organization and those that are contained within, approved of, and enforced by the social system in which the organization exists”. Denk, Kaufmann, and Roesch (2012: 328) define external legitimacy as the “degree of fit of the actions of an MNE with the local institutional environment” and Suchman (1995: 574) defines legitimacy as a “generalized perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs and definition”. For the purpose of this thesis external legitimacy can be defined as the level of acceptance by the host country environment.
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host country environment has no knowledge about the foreign firm; 2) in evaluating the foreign firm the host country environment uses prejudices and different norms; and 3) “the use of MNEs as targets for attacks by interest groups in the host country” (1999: 68). In their provocative paper Kostova, Roth, and Dacin (2008) argue that to understand legitimacy, research should go further than isomorphism.
According to Luo, Shenkar, and Nyaw (2002) there are two ways to improve legitimacy, social accommodation and organization credibility. Where social accommodation refers to the contribution of the foreign firm to the local social needs, and organizational credibility refers to the level of trust the host environment has in the foreign firm. Luo, Shenkar, and Nyaw argue organizational credibility is important for foreign firms to “initiate, build, and maintain relations with local business community” (2002: 288). Uncertainty of the host country environment towards the foreign firm increases when they have less knowledge about the firm (Schmidt and Sofka 2009).
Trust
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they state that when headquarters provides a strategy that produces high quality products, the subsidiary in turn trusts the headquarters for its legitimate direction. Kostova and Roth (2002) argue that trust is a determining factor is establishing internal legitimacy (legitimacy between headquarters and subsidiary). The study of Daamen et al. (2007) explores, amongst others, the role of trust in foreign companies between the local and foreign employees. It explains that trust was built over time and that it is an important determinant in the success of the foreign company.
However, building on the theory of Luo, Shenkar, and Nyaw (2002), the level of trust of the host environment is a determinant of the degree of legitimacy. Therefore, if we want to learn about the factors that determine external legitimacy and how this can be increased, we have to look at the factors that determine (dis)trust of the host country stakeholder (ie. citizens, suppliers, government) towards the foreign firm. If trust is low, the foreign firm needs to take actions to increase this trust, therefore, this thesis will specifically focus on the factors of distrust rather than trust.
2.3 Distrust in foreign investors
This section provides a clearer understanding of distrust in foreign investors and provides
hypotheses.
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arise for foreign firms because they are discriminated against. The costs that arise from the discriminatory hazard could be a consequence of consumer ethnocentrism (Balabanis et al. 2001). They state that ethnocentrism is a biased reflection towards in- and outgroups, negative towards outgroups and positive towards ingroups. In the case of consumer ethnocentrism, the outgroup refers to foreign-made products (Shimp and Sharma 1987). Suggesting that ethnocentric consumers view local-made products (ingroup) more positively and foreign-made products more negatively. They found that ethnocentric consumers viewed buying foreign-made products as an action that could negatively influence the local economy and as a consequence a decreasing local labour market. Balabanis et al. (2001: 161) argue that the level of ethnocentrism is lower for man, educated, and higher-income consumers. Shimp and Sharma (1987) found that consumers that were more likely to be negatively influenced by foreign competition, had higher scores on their CETSCALE, which shows the level of consumer ethnocentrism.
2.3.1 ‘Winners’ and ‘losers’ of globalization
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person, in terms of well-being, has benefit from globalization. Graham (2001) argues that the ‘poor’ not directly benefit, but that their living standards will increase since social safety nets increase with globalization. However, these findings are not shared by everyone (Stiglitz 2003).
Assumed was that low-skilled workers in developed countries are so called losers of globalization, because they see their jobs disappear to low-income countries (Rudra 2005). So, then low-skilled workers in low-income countries should be ‘winners’, because there are more jobs available in their countries. However, research shows that the bargaining position of the low-skilled workers in low-income countries has not improved with globalization (Rudra 2005).
If a citizen believes it is a ‘loser’ from globalization, it is not strange to be hesitant against foreign investors. Thus, distrust might be high with people that have most to lose from it. Research shows that low-income and low-skilled workers have most to lose from foreign investment and high-income and high-skilled workers have most to gain from globalization. Balabanis et al. (2001) suggest that if income of a worker increases, this person is more likely be positively towards foreign-made products.
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Hypothesis 1: Income-level has a negative impact on the level of distrust in foreign investors.
Hypothesis 2: Education-level has a negative impact on the level of distrust in foreign
investors.
However, if the economic situation of the whole country and that of a worker’s own household has increased or if satisfaction is high, it might matter less whether they have a high income or are better educated. These citizens may then view as themselves as ‘winners’ of globalization and therefore have a positive attitude towards FDI (Graham 2001). Therefore, the following hypotheses is formulated:
Hypothesis 3: Regardless of the education- or income-level of the participant, an improved
economic/household situation has a negative effect on distrust in foreign investors.
Hypothesis 4: Satisfaction of life, economy and finances has a negative influence on the level
of distrust in foreign investors.
2.3.2 Uncertainty avoidance and radius of trust
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take in forming relationships” (Bhardwaj, Dietz, and Beamish 2007: 33). Uncertainty avoidance is defined as “the extent to which the members of a culture feel threatened by uncertain or unknown situations” (Hofstede 2001: 161). A country with a high level of uncertainty avoidance is less likely to see a foreign firm as legitimate than a local firm, because it is unknown, hence uncertain. This causes an extra difficulty for foreign investors, which in turn may lead to less FDI in that country. Bhardwaj, Dietz, and Beamish link uncertainty avoidance to the radius of trust: “the circle within trust is granted” (Bhardwaj 2007: 34). They state that a country can be high in trust, but when there is also high uncertainty avoidance, this trust might not be given to foreigners (to the unknown). Results show that high uncertainty avoidance lessens the radius of trust. Shenkar (2012) also stated in his article that uncertainty avoidance played a more significant role in predicting favourable FDI outcomes than any other cultural dimension.
Building on the above example, uncertainty avoidance plays an important role in the radius of trust. Suggesting that if general trust is high and the country has a low uncertainty avoidance, this may result in high levels of trust towards foreign investors. Therefore, the following hypothesis is formulated:
Hypothesis 5: High uncertainty avoidance has a positive effect on the level distrust in foreign
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As argued above, ethnocentrism is a biased reflection towards in- and outgroups, suggesting that ethnocentric consumers view local-made products (ingroup) more positively and foreign-made products more negatively. They found that ethnocentric consumers viewed buying foreign-made products as an action that could negatively influence the local economy and as a consequence a decreasing local labour market. Balabanis et al. (2001: 161) argue that the level of ethnocentrism is lower for man, higher-educated, and higher-income consumers. Shimp and Sharma (1987) found that consumers that were more likely to be negatively influenced by foreign competition, had higher scores on their CETSCALE, which shows the level of consumer ethnocentrism.
Hypothesis 6: An ethnocentric culture has a positive effect on the level of distrust in foreign
investors.
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upper-middle, and higher income countries. Derived from the research of Rudra (2005), this thesis argues that the higher the average income classification of a country, the higher trust in foreign investors.
Hypothesis 7: The income level of a country has a negative effect on the level of distrust in
foreign investors.
2.4 Summary
In summary, this chapter explored the theoretical background on LOF, it sources, and previous research on how to overcome LOF. An in-depth review of lack of legitimacy was given – why it is such an important determinant of LOF – and its relationship to trust in foreign investors. Finally, the chapter looked at possible factors that could determine a person’s distrust in foreign investors by formulating hypotheses based on individual-level determinants derived from studies on winners and losers of globalization and based on country-level determinants, namely, uncertainty avoidance, ethnocentrism, and income classifications. A summary of the hypotheses can be found in Table 2.1 and a conceptual model derived from the hypotheses can be found in Figure 2.1. The next chapter discusses the method and statistical analyses, furthermore it explains the variables, including the control variables as shown in the conceptual model
23 Table 2.1 Summary of hypotheses
Individual-/
country-level Hypotheses
H1 Individual Income-level has a negative impact on the level of distrust in foreign investors
H2 Individual Education-level has a negative impact on the level of distrust in foreign
investors
H3 Individual
Regardless of the education- or income-level of the participant, an improved economic/household situation has a negative effect on distrust in foreign investors.
H4 Individual Satisfaction of life, economy and finances has a negative influence on the level
of distrust in foreign investors.
H5 Country High uncertainty avoidance has a positive effect on the level distrust in foreign
investors.
H6 Country An ethnocentric culture has a positive effect on the level of distrust in foreign
investors.
H7 Country The income level of a country has a negative effects on the level of distrust in
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3. Data and method
This chapter contains a description of the data and methods used for the purposes of this
thesis. First, the type of data and the source of the data that is used for the empirical analysis
are described. The second part describes the dependent variable, independent variables and
the control variable. Finally, the statistical techniques that are used are described.
3.1 Sample and data collection
This section explains which data is used and how it is obtained.
This is an explanatory research, its purpose of is to further increase our understanding of LOF through an in-depth analysis on lack of legitimacy by considering the factors that make citizens of a host country more or less trusting of foreign investors based on an existing quantitative data source. Several control variables are used, like citizens that work for a foreign company to prevent bias, and age and gender. General trust is used as a control model for the robustness check.
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participants per country. The LiTS provides a clearer understanding of origins of attitudes and satisfaction, the first survey was conducted in 2006, the second one in 2010 with the main purpose to gain insight in how the daily lives of people had been affected by the crisis, and if this changed their attitudes and believes (Life in Transition, 2010). However, the country-level determinants were not available via the LiTS, therefore, for these determinants, additional data is added to the existing dataset of the LiTS. To be able to test if distrust in foreign investors is influenced by uncertainty avoidance, the national culture dimension from Hofstede (The Hofstede Centre, 1973) is used as a data source. Furthermore, to be able to subdivide the countries to low-, lower middle-, upper middle-, and high- income groups GNI per capita is used (The World Bank, 2013ab). Ethnocentrism is measured through two complementary questions from the World Values Survey (WVS, 2011): Because of lack of availability of data for all LiTS countries for uncertainty avoidance and ethnocentric culture, this research was conducted using data of sixteen countries for uncertainty avoidance and twenty-four countries for ethnocentric culture. This can also be seen in Table 3.1.
Table 3.1 Sample per country
26 Hungary*** 889 Italy*** 941 Kazakhstan 699 Kosovo 771 Kyrgyzstan* 745 Latvia*** 649 Lithuania*** 662 Macedonia* 954 Moldova* 495 Mongolia 560 Montenegro 705 Poland*** 1351 Romania*** 792 Russia*** 828 Serbia** 1313 Slovakia*** 754 Slovenia*** 794 Sweden*** 734 Tajikistan 704 Turkey*** 875 Ukraine* 1116 Oezbekistan 933 N 28420
* Ethnocentric culture ** Uncertainty avoidance *** Ethnocentric culture and uncertainty avoidance
3.2 Variables
This section gives an overview of the variables that are of importance for this thesis. First, the
dependent variable is explained and how it this variable is measured. Second, the key
independent variables of the possible determinants of distrust in foreign investors are given.
These determinants can be divided in two broad areas; individual-level and country-level
27 3.2.1 Dependent variable
The dependent variable of this thesis is ‘trust in foreign investors’. This variable is based on one question in the LiTS, namely ‘To what extent do you trust the following institutions: foreign investors. It is designed as a five-point scale (1. Complete distrust; 5. Complete trust) and a sixth option ‘Difficult to say’ (LiTS questionnaire, 2010). However, the last option is of no use for the purposes of this thesis, therefore all participants with answer 6 were removed from the dataset. Section 2.3 went into depth about distrust in foreign investors.
3.2.2 Key Independent variables
I used several independent variables that are key to test the formulated hypotheses in chapter 2. For the statistical analyses more than the key variables mentioned here are used, but these are not of direct influence on testing the hypotheses and are therefore not mentioned in this section. The independent variables can be broadly divided in two categories, namely individual-level and country-level variables.
Individual-level variables
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situation. There are multiple questions that can be used, together these questions measure if the economic and household situation of a citizen has improved/reduced and if they think their economic and household situation will improve or reduce in the near future. Examples of LiTS questions are ‘The economic situation in our country is better today than around 4 years ago’ and ‘my household lives better nowadays than around 4 years ago’, with answers that vary from 1) strongly disagree to 5) strongly disagree, and 6) not applicable and 7) don’t know (DK). Where the first question specifically asks about the perception of the individual to change country wide, the second question refers to a individual change. Fourth, the satisfaction level of the citizen, whether this is on life, economic, or financial situation.
Country-level variables
29 3.2.3 Control variables
The sample is controlled for age, gender and whether or not the participant is employed at a foreign company. The latter can provide a biased view towards foreign investors, regardless of the participants’ economic determinants that are the focus of this thesis. Furthermore, the sample is controlled for by the determinant ‘general trust’. Bhardwaj, Dietz, and Beamish (2011) provide the example of two high-trust countries, Japan and Sweden. Where Sweden benefits of high levels of FDI that can be linked to its high level of trust, this is not the case for Japan. The ‘general trust’ factor is used for the robustness check, because the purpose of this thesis is finding determinants of distrust in foreign investors, not for general trust.
3.2 Analytical strategy
This section provides a brief explanation of the statistical techniques and the descriptive
statistics and correlation of the used data sources.
3.3.1 Statistical techniques
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This determines which factors still hold a significance influence on trust in foreign investors after controlling for general trust. It can be assumed that participants with a high level of general trust are more likely to have a high level of trust in foreign investors than the participants with a low level of general trust.
3.3.2 Descriptive statistics and correlation
Table 3.2 shows the descriptive statistics. The average age of the respondents is 47.31 and there are slightly more male than female participants. Trust in foreign investors is in the middle, which means that the average is neither trust, nor distrust. Most people are satisfied about their life, an average of 3.35 out of a five-point Likert scale.
Table 3.2 Descriptive statistics
Variables Means S.D. Minimum Maximum
1. Trust in foreign investors 2.48 1.116 1 5
2. Income ladder 4.59 1.701 1 10
3. Education level 4.17 1.512 1 7
4. Income ladder improved last 4 years 4.84 1.812 1 10
5. Economy improved last 4 years 2.42 1.127 1 5
6. Household improved last 4 years 2.81 1.087 1 5
7. Satisfaction life 3.35 1.078 1 5
8. Satisfaction economy 2.51 1.103 1 5
9. Satisfaction financial situation 2.98 1.154 1 5
10. Ethnocentric culture* .0021490 1.12097083 -2.07749 2.65722
11. Uncertainty avoidance** 75.3010 19.46969 29.00 95.00
12. Income group country 3.3582 .71241 1.00 4.00
13. General trust 2.95 1.053 1 5
14. Works at foreign company 1.02 .144 1 2
15. Age respondent 47.31 16.973 2 99
16. Gender respondent 1.62 .485 1 2
the variables have a correlation higher than .75, so there is no problem of multicollinearity (Multiple Regression, CSULB).
Table 3.3 Correlation statistics
Variables 1 2 3 4 5 6 7 8 9 10 11 12 13 1. (Dis)trust in foreign investors 2. Income ladder .143** 3. Education level .067** .196** 4. Income ladder
improved last 4 years
.066** .709** .135** 5. Economy improved
last 4 years
.276** .127** .027** -.024** 6. Household
improved last 4 years
This chapter shows the results of empirical analyses of the data. In the first section the
baseline results are described first for the individual- and country- level determinants
separately and then all determinants put together. The second section contains a robustness
check. General trust, a control variable, is added to the analyses and these results are
compared to the baseline results.
4.1 Baseline results
4.1.1 Individual-level determinants
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Individually measured, all determinants have a positive influence on trust in foreign investors. This reveals that they are positively related to the level of trust in foreign investors. For example the positive value (.089) for income ladder suggests that higher income, in general, generates a higher trust level in foreign investors. Remarkably, the relationship of life satisfaction on trust in foreign investors changes from positive when individually measured, to negative when the other factors are taken into account. This suggests that when the other factors are taken into account life satisfaction has a negative influence on trust in foreign investors.
The Adjusted R-square, for all determinants taken together, is .121, which means that 12.10% of the variation in trust in foreign investors can be attributed to these eight determinants. Individually measured, satisfaction of the economy and improvement of the economy are the factors with the highest R-square. This suggests that these two factors have the highest explaining power towards trust in foreign investors.
Dependent variable = distrust in foreign investors 1 2 3 4 5 6 7 8 9 Intercept 2.459*** (.000) 2.744*** (.000) 2.676*** (.000) 2.118*** (.000) 2.148*** (.000) 2.377*** (.000) 2.064*** (.000) 2.419*** (.000) 1.503*** (.001) Income ladder .089*** (.000) .025*** (.000) Education level .027*** (.000) .016*** (.000) Income ladder improved last 4 years .042***
(.000)
.021*** (.000)
Economy improved last 4 years .258***
(.000)
.131*** (.000)
Household improved last 4 years . .215***
(.000) .077*** (.000) Satisfaction life .149*** (.000) -.014*** (.000) Satisfaction economy .282*** (.000) .165*** (.000)
Satisfaction financial situation .164***
(.000)
.000 (.000) Adjusted R2 .039 .022 .026 .088 .064 .042 .098 .050 .121
N 28420 28420 28420 28420 28420 28420 28420 28420 28420
Notes: Values are unstandardized coefficients, with Standard Error in parentheses. All values are controlled for gender, age and having a foreign employer.
Table 4.2 illustrates the regression analyses for the country-level determinants, both individually measured and together. The p-values of the regression models’ F-test were highly significant (.000), which indicates that the independent variables individual and together predict the level of trust in foreign investors. The relationships of the determinants, both individually measured and together, are significant, which suggest that the relationships of the regression coefficients are not attributed to chance.
Individually measured, ethnocentric culture and uncertainty avoidance are positively related to the level of trust in foreign investors, for the determinant ethnocentric culture this still holds true when measured together with the other country-determinants. However, the relationship of uncertainty avoidance changes to a negative one, which implies that when other factors are taken into account, high uncertainty avoidance has a negative impact on the level of trust in foreign investors, although the strength (-.007) of the impact is not very strong.
Dependent variable = distrust in foreign investors 1 2 3 4 Intercept 2.691*** (.000) 2.577*** (.001) 3.665*** (.000) 4.579 *** (.001) Ethnocentric culture .069*** (.000) .034*** (.000) Uncertainty avoidance .001*** (.000) -.007*** (.000)
Income group country -.294***
(.000)
-.432*** (.000)
Adjusted R2 .021 .016 .054 .043
N 22721 15940 28420 28420
Notes: Values are unstandardized coefficients, with Standard Error in parentheses. All values are controlled for gender, age and having a foreign employer.
*** p < .01
Table 4.2 shows the individual- and country- level determinants measured together. For this analysis the p-value of the F-statistic is also .000, thus highly significant for the model as a whole. The purpose of this research is to find factors that determine distrust in foreign investors, however, the regression analysis tests the relationship towards the level of trust, and not distrust.
investors) is supported, the regression coefficient is positive and significant for all analyses. The multiple regression coefficient (.008) is not very strong, although it is significant. This indicates that a higher education level, results in more trust, hence less distrust in foreign investors.
Hypothesis 3 (Regardless of the education- or income-level of the participant, an improved economic/household situation has a negative effect on distrust in foreign investors) is measured through three factors. All three are significant and positive (.035, .072, and .056) indicating that an improved economic and household situation, regardless of the education- or income level of the participant, ensures higher trust, hence less distrust in foreign investors. Thus, Hypothesis 3 is supported.
Hypothesis 4 (Satisfaction of life, economy and finances has a negative influence on the level of distrust in foreign investors) is measured by three factors. All three factors have a positive regression coefficient (.027, .143, and .008) and are significant. Therefore, Hypothesis 4 is supported. Which indicates that higher satisfaction levels ensures higher trust, hence less distrust in foreign investors. Or lower satisfaction level ensure greater distrust in foreign investors. The Adjusted R-square of the factor ‘satisfaction economy’ is the highest in the model (.098), indicating that this factor has greatest explaining power on the level of distrust in foreign investors.
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individual-level determinants. The bivariate Adjusted R-square is the lowest of all the variables, suggesting that uncertainty avoidance has the least explaining power on the level of distrust in foreign investors.
Hypothesis 6 (An ethnocentric culture has a positive effect on the level of distrust in foreign investors) is not supported, both the bivariate and multiple regression coefficients are positive, indicating that a high ethnocentric culture ensures high level of trust, hence low levels of distrust.
Dependent variable = distrust in foreign investors 1 2 3 4 5 6 7 8 9 10 11 12 Intercept 2.459*** (.000) 2.744*** (.000) 2.676*** (.000) 2.118*** (.000) 2.148*** (.000) 2.377*** (.000) 2.064*** (.000) 2.419*** (.000) 2.691*** (.000) 2.577*** (.001) 3.665*** (.000) 2.867*** (.001) Income ladder .089*** (.000) .042*** (.000) Education level .027*** (.000) .008*** (.000) Income ladder improved
last 4 years
.042*** (.000)
.035*** (.000) Economy improved last 4
years
.258*** (.000)
.072*** (.000) Household improved last
4 years . .215*** (.000) .056*** (.000) Satisfaction life .149*** (.000) .027*** (.000) Satisfaction economy .282*** (.000) .143*** (.000) Satisfaction financial situation .164*** (.000) .008*** (.000) Ethnocentric culture .069*** (.000) .041*** (.000) Uncertainty avoidance .001*** (.000) -.005*** (.000)
Income group country -.294***
(.000)
-.363*** (.000) Adjusted R2 .039 .022 .026 .088 .064 .042 .098 .050 .021 .016 .054 .129 N 28420 28420 28420 28420 28420 28420 28420 28420 22721 15940 28420 28420
A robustness check is conducted through adding the control variable ‘general trust’. Table 4.4 shows the individual-level determinants of distrust in foreign investors with the control variable, most relations remain the same (positive or negative) as in Table 4.1.
Table 4.4 Individual-level determinants of distrust in foreign investors with control variable ‘general trust ‘ Dependent variable = distrust in foreign
investors 1 2 3 4 5 6 7 8 9 Intercept 2.036*** (.000) 2.304*** (.000) 2.183*** (.000) 1.684*** (.000) 1.714*** (.000) 1.952*** (.000) 1.661*** (.000) 1.978*** (.000) 1.279*** (.001) Income ladder .070*** (.000) .016*** (.000) Education level .001*** (.000) -.001*** (.000) Income ladder improved last 4 years .030***
(.000)
.021*** (.000)
Economy improved last 4 years .241***
(.000)
.125*** (.000)
Household improved last 4 years . .196***
(.000) .076*** (.000) Satisfaction life .124*** (.000) -.023*** (.000) Satisfaction economy .261*** (.000) .158*** (.000)
Satisfaction financial situation .142***
(.000)
3.374 E-005 (.000) Adjusted R2 .066 .055 .058 .113 .090 .069 .120 .076 .139
N 28420 28420 28420 28420 28420 28420 28420 28420 28420
41
However, the multiple regression coefficient of education level has become negative, suggesting that when general trust is taken into account, together with the other individual-level variables, a higher education level might ensure higher levels of distrust in foreign investment. Table 4.5 shows the country-level determinants of distrust in foreign investors with the control variable. The most noteworthy difference with Table 4.2 is the bivariate and multiple regression coefficient of ethnocentric culture. The relationship has grown stronger when general trust is taken into account.
Table 4.5 Country-level determinants of distrust in foreign investors with control variable ‘general trust’
Dependent variable = distrust in foreign investors 1 2 3 4 Intercept 2.102*** (.000) 1.985*** (.001) 3.086*** (.001) 3.539 *** (.001) Ethnocentric culture .102*** (.000) .082*** (.000) Uncertainty avoidance .002*** (.000) -.005*** (.000)
Income group country -.279***
(.000)
-.334*** (.000)
Adjusted R2 .058 .049 .085 .078
N 22721 15940 28420 28420
42
43
Table 4.6 Individual- and country- level determinants of distrust in foreign investors with control variable ‘general trust’ Dependent variable = distrust in foreign investors 1 2 3 4 5 6 7 8 9 10 11 12 Intercept 2.036*** (.000) 2.304*** (.000) 2.183*** (.000) 1.684*** (.000) 1.714*** (.000) 1.952*** (.000) 1.661*** (.000) 1.978*** (.000) 2.102*** (.000) 1.985*** (.001) 3.086*** (.001) 2.303*** (.001) Income ladder .070*** (.000) .034*** (.000) Education level .001*** (.000) -.003*** (.000) Income ladder improved
last 4 years
.030*** (.000)
.034*** (.000) Economy improved last 4
years
.241*** (.000)
.067*** (.000) Household improved last
4 years . .196*** (.000) .055*** (.000) Satisfaction life .124*** (.000) .019*** (.000) Satisfaction economy .261*** (.000) .139*** (.000) Satisfaction financial situation .142*** (.000) .003*** (.000) Ethnocentric culture .102*** (.000) .070*** (.000) Uncertainty avoidance .002*** (.000) -.004*** (.000)
Income group country -.279***
(.000)
-.293*** (.000) Adjusted R2 .066 .055 .058 .113 .090 .069 .120 .076 .058 .049 .085 .146 N 28420 28420 28420 28420 28420 28420 28420 28420 22721 15940 28420 28420
Table 4.7 shows an overview of the Hypothesis and whether or not they are supported.
Table 4.7 Are the hypotheses supported or not?
Individual-/ country-level
Hypotheses Results
H1 Individual Income-level has a negative impact on the level of
distrust in foreign investors Supported
H2 Individual Education-level has a negative impact on the level of
distrust in foreign investors Not supported
H3 Individual
Regardless of the education- or income-level of the participant, an improved economic/household situation has a negative effect on distrust in foreign investors.
Supported
H4 Individual
Satisfaction of life, economy and finances has a negative influence on the level of distrust in foreign investors.
Supported
H5 Country High uncertainty avoidance has a positive effect on the
level distrust in foreign investors. Supported
H6 Country An ethnocentric culture has a positive effect on the
level of distrust in foreign investors. Not supported
H7 Country The income level of a country has a negative effects on
45
5 Discussion and conclusion
46
Curious is the positive relation of higher education and higher levels of distrust in foreign investors. However, this hypothesis is not supported after controlling for general trust. It might be true that higher educated people have a relatively high general trust, which might explain why the relationship towards foreign investment turned negative after the robustness check. An ethnocentric culture seems to have a negative influence on the level of distrust in foreign investors, although looking at past literature this seems unlikely. This might be interesting for future research to study more in-depth. The research of Rudra (2005) showed that low-income LDCs were the so called losers of globalization, which, in this thesis, was related to a higher level of distrust towards foreign investment. However, the analyses of this research show exactly the opposite.
5.1 Limitations and future research
For the purpose of this thesis and the time constraint, all variables are considered to be continuous. This is probably not for all variables true, like for example education level. Although the data is ordinal, not every category has the same distance between them, or more suitable, the distance cannot be equally measured between for example elementary education, high school education and university.
47
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