A mediating model of psychic distance and FDI market selection

In developing and testing a mediating model of psychic distance, this paper bridges the gap between two distinct approaches to the concept on psychic distance - defining and measuring the construct in terms of exogenous national level differences, and defining and measuring it in terms of the individual decision-maker's perceptions. The paper confirms five distinct types of national level differences (or distances) which are significant antecedents of perceptions of psychic distance. In addition to that, two asymmetric 'distance-bridging' factors are also found to be significant predictors of psychic distance. In turn, perceptions of psychic distance prove to be a significant predictor of foreign direct investment flows. Subsequent tests also confirm that in all but one case, the national level distance variables represent complete mediation relationships. Overall, the model confirms both the criterion validity of perceptions of psychic distance and the construct validity of its antecedents.