WHAT DRIVES AIRLINES TO MAKE A CROSS-BORDER INVESTMENT? FIRM-LEVEL FACTORS AND INSTITUTIONAL FACTORS

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Nobuaki Endo
Toshiya Ozaki

Keywords

Foreign direct investment, Institutional difference, Foreign ownership restriction, Intangible assets, LCCs, Eclectic Paradigm

Abstract

The purpose of this research is to identify the determinants of cross-border investment in the airline industry, focusing on the intangible assets and resources which airlines possess and the institutional differences between home and host countries. The empirical results indicate that airlines have fewer incentives for making foreign investment in other airlines in institutionally different countries and culturally different countries. Furthermore, government restriction on foreign ownership in the host country may discourage airlines to pursue investment in such country. The results weakly support a hypothesis that the more intangible assets airlines possess, the more they may be induced to make FDI. We interpreted the results as follows: the FDI decision of the airline industry may be accounted for by Dunning’s Eclectic Paradigm model just as other industries may be; the institutional difference may have an overwhelming impact on airlines for their FDI decisions; and further studies may be necessary in scrutinizing the role of intangible assets of airlines.

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