Junhui Qian: Using a Korean firm-level data set, the authors find strong evidence that social capital, in particular trust and social norms, matters in FDI location decisions in Korea. In addition, social capital magnifies the agglomeration effect on FDI location decisions. The paper also considers other heterogeneities such as sources of FDI and different types of industries. In particular, is the authors find that social capital matters more for FDI in knowledge based industries.
That social capital has a positive effect on the FDI location decisions is by no means obvious. One's first thought might be that social capital may deter FDI, since outsiders may find it difficult to “break in.” This paper sheds light on this ambiguity by separately considering the components of social capital, networks on the one hand and trust and shared norms on the other. As expected, the effect of networks is not statistically significant, though...