Guided through the "Red tape"? : information sharing and foreign direct investment

Abstract

What drives the observed tendency of new FDI, other things equal, to be attracted to locations where many other foreign investors are located? One explanation in the literature on FDI location is that expected bene ts from agglomeration externalities make rms want to locate in agglomerated regions. Alternatively, potential investors get information about conditions in a host from rms in their own business network that already have experience from that country. We study how Norwegian FDI location choice depends on previous Norwegian presence, using information about institutional quality to separate the impact of information sharing from agglomeration externalities. The impact of previous Norwegian investors is larger in countries with low institutional quality. We interpret this as consistent with the presence of information sharing among Norwegian investors.