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 of psychic distance – defining and measuring the construct in terms of exogenous national level differences, and defining and measuring it in terms of decision-makers' perceptions. The paper confirms five distinct types of national level differences (or distances) to be significant antecedents of perceptions of psychic distance. Two asymmetric ‘distance-bridging’ factors are also found to be significant antecedents of psychic distance. Psychic distance perceptions are shown to be significant predictors of foreign direct investment flows. Subsequent tests 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.