Abstract
Semi-globalization emphasizes the role of geographic regions in MNEs’ internationalization due to the possibility of developing region-bound firm specific advantages and arbitrage. In this paper, we develop and test hypotheses about the effects of a region’s institutional diversity on MNEs’ propensity to internationalize in a country, as it influences the possibility and cost of RFSAs and arbitrage. We develop hypotheses about a Ushaped relationship between a region’s institutional diversity, differentiating formal and informal institutions, and the propensity of a MNE to internationalize in a country in this region. We test these hypotheses on a sample of Japanese MNEs operating in 45 countries within eight regions. The results validate these U-shaped relationships showing that a region’s diversity plays an important and complex role in semi-globalization. These results present a new perspective to understand how regions’ characteristics explain semi-globalization and MNEs’ internationalization.