The Measurement of Psychic Distance: Case of Foreign Investors in Slovakia
The Measurement of Psychic Distance: Case of Foreign Investors in Slovakia

Summary/Abstract: The original intention of this paper was to explore how best to measure psy-chic distance; and more specifically, to test the criterion-related validity of a new set of scales recently made available by Dow and Karunaratna (2006). The empirical setting is inward foreign direct investment (FDI) in Slovakia from 1990 to 2007. The findings indicate that when predicting market selection and performance, a formative index of the new psychic distance scales is a significantly better predictor variable than the traditionally employed scale based on Hofstede’s (1980) dimensions of national culture. However, for predicting entry mode choice, the results are more ambiguous. This leads us to an unexpected result of our analyses. The classic TCE-based entry mode model does not appear to provide significant predictive power with respect to FDI entry mode choice in Slovakia. The implications of these findings are discussed in detail.

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