The Influence Of Psychic Distance On Foreigen Dierct Investement Flows

In this day and age, Foreign Direct Investment (FDI) as an important component of the economic globalization has been made a significant contribution to the global economic growth. In order to confront with the growing fierce international competition, countries in the world should make efforts to develop the FDI for a dominative place in the economic globalization. By 2009, China is the biggest developing country in absorbing FDI inflows and output of FDI outflows, which indicates the strategy of China "Bringing in" and "Going global", has made gratifying achievements. However, with the rapid growth of the total FDI, FDI distribute extremely uneven in different regions and countries.This paper attempts from the perspective of psychic distance to explain the international direct investment flows, and find the relationship between psychic distance and international direct investment, and then to help our government better use the psychic distance to attract more foreign direct investment, but also for Chinese enterprise through psychic distance better understanding of host market environment and improve our internationalized management abilities to participate in the international market for the core competitiveness.Based on FDI theory and psychic distance theory, this paper has established a an index for the operationalization of psychic distance in China, measured the psychic distance between China and the world's major powers, and proved there is a negative correlation between the psychic distance and FDI flows. Most scholars focus on the psychic distance of western developed countries, while ignoring the developing countries. Therefore, it is a great innovation point in this paper for taking China as the concern, which is the largest developing country in the world. Another great innovation point is that this paper demonstrated the relationship between psychic distance and FDI flows through measuring the psychic distance between China and the world's major powers and some other empirical research methods.The conclusions of this study can give some suggestions to governments on how to improve psychic distance to enhance the ability of output and absorbing FDI. It also shows that there is a negative correlation between psychic distance and FDI flows, namely the closer the psychic distance between China and the home country, the more the multinationals to China for foreign direct investment, and vice versa. The closer the psychic distance between China and the host country, the more outward foreign direct investment flow from China to the host country, and vice versa.