Journal of Business & Economic Policy

ISSN 2375-0766 (Print), 2375-0774 (Online) DOI: 10.30845/jbep

Cultural Affinity, Institution Stability, and Geographic Distance in Cross-Border Peer-to-Peer Micro-Lending
Darline Augustine, PhD; Maude Toussaint-Comeau, PhD; Christopher Wheat, PhD; Ephraim Okoro, PhD

International business and economic development researchers theorize that cultural affinity impacts crossborder investment decisions, but these theories produce inconclusive findings. In this study, we propose a theoretical and empirical framework that explores cross-border capital flows in a context where the effect of the levels of cultural affinity is likely to be salient for private direct investments in micro and small enterprises in developing countries. We disaggregate cross-country effects into three dimensions — culture, institutional context, and geographic distance and argue that these dimensions should have separate effects on investment. We test our hypotheses using cross-country panel data from Kiva, a peer - to-peer micro-lending platform used by investors to lend in the broad global market, and especially to developing country entrepreneurs. Our results reveal that controlling for macroeconomic and business cycle financial effects, lenders invest more in entrepreneurs that are geographically distant, have fewer socioeconomic resources, but are culturally similar. The nature and type of institutional challenges facing the borrowing country also matter.

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