Date of Award

Summer 2010

Document Type


Degree Name

Doctor of Philosophy (PhD)


Business Administration-Strategic Management

Committee Director

Shaomin Li

Committee Member

David Selover

Committee Member

George O. White III


We examine how governance environment affects business activities across countries. Using an updated framework of governance environments, we classify countries into three groups based on their dominant modes of governance: (1) rule-based (strong rule of law), (2) relation-based (weak rule of law and strong informal network based on private relations), and (3) neither-based (absence of both public rules and private network). We then examine how different governance types affect trade patterns and foreign investment flows. Chapter 2 theoretically proposes that the governance environment of a society plays a significant role in influencing international trade and foreign investment across countries. Chapter 3 examines how different governance types affect trade patterns among 44 countries. Overall, we find that rule-based countries trade more than relation-based or neither-based countries. A large positive effect on trade flows exists between two highly rule-based countries and between two relation-based countries. Any trade relationship involving a neither-based country negatively affects trade flows, even between two neither-based countries. In Chapter 4, we examine how different governance types affect foreign investment flows among 44 countries. We find that rule-based countries attract the lowest amount of EDI relative to total amount of foreign investment, and they have the largest stock market size relative to their economies.

This thesis is among the first to introduce the third category of governance—neither-based governance. This advancement will contribute to both the institution and political economy literature. Using the updated framework of governance to explore trade and foreign investment patterns of many countries, especially of those relatively undeveloped countries, will contribute the international business literature. In addition to academic contributions, this study provides important policy implications to those neither-based countries. We suggest that in considering trade and foreign investment policies, governments should pay close attention to the governance environments to evaluate their own and their partners' situations when conducting international business such as trade and foreign investment.


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