The impact of Institutional Distance on FDI inflows in the Czech Republic

Czech Republic. This study contributes to the literature on the importance of institutional distance
between home and host country among the factors able to infl uence FDI. The novelty of our paper
is that (1) we consider whether institutional distance matters also when the host country is already
endowed with institutional standards relatively close to those of the main home countries of MNEs,
and (2) we run separate investigations of home-host countries’ institutional distance, distinguishing
between institutionally safer and less safe home countries in comparison with the host ones. The
Czech Republic has been chosen in view of these perspectives, as (1) it has traditionally been
considered as one of the most developed markets among those emerged from the socialist
experience, its level of institutional development is close to that of the various home countries
of MNEs, and (2) besides hosting MNEs from home countries endowed with safer institutions,
it receives a  certain amount of FDI also from countries with a  relatively less safe institutional
environment. Our results challenge the previous literature, in the sense that institutional distance
may actually be perceived as an opportunity, especially by MNEs from home countries with higher
levels of institutional development. Indeed, MNEs from home countries with less safe institutions
than Czech ones follow a more ambiguous pattern.