This paper finds that a country’s affinity with a foreign country has a positive effect on foreign direct investment flows from it to that country, by analyzing Japanese foreign direct investment outflows during the period of 1995 to 2009. A rise in affinity between countries is thought to enhance their mutual trust and as a result lower the transaction costs of economic activities between them, thereby helping to promote bilateral foreign direct investment flows. These findings imply that a rise in affinity among countries is likely to facilitate international economic integration.JEL Classification Codes: F2Embargo Period 24 monthshttp://www.grips.ac.jp/list/jp/facultyinfo/chey_hyoung-kyu
