PSYCHOLOGICAL ANALYSIS OF ECONOMIC INVESTMENT AND ESTABLISHMENT OF PSYCHOLOGICAL DISTANCE BASED ON RESOURCE CARRYING CAPACITY

Revista Argentina de Clínica Psicológica 2020, Vol. XXIX, N°2, 866-870

DOI: 10.24205/03276716.2020.323 866

P

SYCHOLOGICAL

A

NALYSIS OF

E

CONOMIC

I

NVESTMENT AND

E

STABLISHMENT OF

P

SYCHOLOGICAL

D

ISTANCE

B

ASED ON

R

ESOURCE

C

ARRYING

C

APACITY

Yu Zhang

_{*, Yu Li}

Abstract

At present, investment psychology is widely used in foreign investment, which is increasingly affected by psychological distance. It is of great significance for each country to clarify the influence of investment psychology and psychological distance on foreign investment. From the perspective of psychological distance, this paper establishes an empirical model based on resource carrying capacity, and applies it to study China’s foreign direct investment (FDI), in the light of investment psychology. On this basis, forward countermeasures and suggestions were put forward to improve China’s FDI. The results show that China’s FDI has entered a stage of rapid development, as evidenced by the continued growth in investment amount and investment field, and the investment areas mainly concentrate in Asia, Europe and the US; there are four main dimensions of psychological distance, namely, institution, culture, geography and environment; psychological distance and its four dimensions all have significant negative correlations with the FDI. The research results have strong theoretical and practical significance for the development of China’s foreign investment.

Key words: Investment Psychology, Foreign Direct Investment (FDI), Psychological Distance, Carrying Capacity.

Received: 18-05-19 | Accepted: 12-08-19

INTRODUCTION

With the continuous development of the world economy and the deepening of the trend of globalization, the direct investment between countries becomes more and more frequent, and the scale is also growing. FDI is an important manifestation of a country's comprehensive national strength. A country's FDI behavior will be affected by many factors, among which psychological distance is a very important factor

(Bar-Anan, Liberman, & Trope, 2006).

Investment psychology is an important branch of economic psychology, which mainly studies the

1_{Liaoning University, Shenyang 110036, China.} 2_Liaoning

Provincial College of Communications, Shenyang 110122, China. 3_{Liaoning Administrators College of Police and Justice,}

Shenyang 110161, China. E-Mail: 13998101331@139.com

psychological activities and behavior rules of investment. At present, the application of investment psychology in a country's FDI is more and more extensive. At the same time, the influence of psychological distance on the country's FDI is also deepening (Cunningham, 1978). It is of great significance to strengthen the

research on investment psychology and

psychological distance for a country's FDI (Trope, Liberman, & Trope, 2007).

At present, many experts and scholars at home and abroad have done a lot of research on

investment psychology and psychological

distance, and obtained much research

achievement. Some scholars have studied the establishment of index system of psychological distance and the measurement of psychological distance (Phillips, 1968); some scholars have conducted in-depth research on the application of psychology in economic investment (Ko, Chen,

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& Wu, 2013); others have analyzed and studied the factors affecting investment (Petrie, 1989). Through studying the current literature, it can be found that few scholars will apply the psychological distance analysis to the research of a country's FDI. As the psychological distance has more and more influence on FDI, it is especially necessary to strengthen the research in this field.

From the perspective of psychological distance, based on the investment economic psychology of resource carrying capacity, this paper analyzes the current situation of China's FDI by establishing an empirical model, and puts forward countermeasures and suggestions to improve the level of China's FDI from the aspect of investment psychology, aiming to promote the development of China's FDI, which has a strong theoretical guidance and practical significance for the promotion of China's comprehensive national strength.

OVERVIEW OF BASIC THEORY

Investment psychology

Investment psychology is an important branch of economic psychology, which first appeared in the United States in the 1980s. It covers economics, psychology, investment, finance and many other disciplines. In a broad sense, investment psychology mainly studies the psychological process and behavior rules of individuals in economic activities (Parker, Thoemmes, Duineveld 2015). In a narrow sense, investment psychology is mainly to study the behavior of participants in the securities market. Nowadays, there are many fields that can be invested in the society, such as stocks, bonds, funds, real estate, etc., while the psychological characteristics that investors often show are

overconfidence, loss-aversion, group

psychology, regret and caution, as shown in Figure 1.

Figure 1

.

Main psychological characteristics

of investors

Psychological characteristics of investors

Overconfidence Loss-aversion Group psychology Regret and caution

Psychological distance

From the psychological point of view, psychological distance mainly refers to the degree of intimacy or alienation between individuals in emotion, behavior, attitude, etc., which is a subjective feeling (Havakeshian & Mannion, 2013). In addition, psychological distance can also be expressed as the distance between individual and external stimulation.

Recently, psychological distance has many dimensions, such as space, time, society and so on, and this concept is widely used in many fields. From the perspective of economics, psychological distance mainly refers to the distance between domestic market and foreign market. There are many reasons for this

distance, such as cultural differences,

institutional differences, language differences, etc. (Macleod & Macleod, 1998).

ANALYSIS OF THE CURRENT SITUATION OF CHINA'S FDI

With the deepening of China's reform and opening up, especially the proposal of "one belt and one road" initiative, China's FDI has entered a stage of rapid development. The amount of FDI has been growing, from US $7.2 billion in 2001 to US $213.2 billion in 2018, as shown in Figure 2.

Figure 2

.

The scale analysis of China's FDI

At the same time, the field of China's FDI continues to expand, from the primary secondary industry to the present various industries (Rahmawati, Chishaki, Sawatari et al., 2013). At present, the service industry, financial industry, manufacturing and other fields account for a relatively high proportion. See Figure 3 for details.

PSYCHOLOGICAL ANALYSIS OF ECONOMIC INVESTMENT AND ESTABLISHMENT OF PSYCHOLOGICAL DISTANCE BASED ON RESOURCE CARRYING CAPACITY ₈₆₈

Figure 3

.

The field distribution of China's FDI

in 2018

In terms of the field distribution of China's FDI, it mainly distributes in Asia, Europe and the United States. In 2018, China's top 10 countries in terms of FDI accounted for a relatively high proportion of total investment, as shown in Table 1.

Table 1.

The field distribution of China's FDI

in 2018

Ranking Country or region Quantity Proportion

1 Hong Kong 424.3 19.90%

2 Cayman Islands 376.5 17.66%

3 British Virgin

Islands 289.6 13.58%

4 United States 274.3 12.87%

5 Singapore 257.6 12.08%

6 Australia 242.8 11.39%

7 Netherlands 189.6 8.89%

8 United Kingdom 175.4 8.23%

9 Russia 169.5 7.95%

10 India 157.8 7.40%

THE INFLUENCE OF PSYCHOLOGICAL DISTANCE ON INVESTMENT

The establishment of psychological distance In the process of investment economics analysis, psychological distance is a complex concept containing many factors. Combined with previous research results, this paper proposes that psychological distance mainly includes four aspects: institutional factor (IF), cultural factor (CF), geographical factor (GF) and environmental factor (EF) (Kozman, Wattis, & Curran, 2006). Psychological distance influences China's FDI via these four aspects, as shown in Figure 4.

Figure 4

.

The field distribution of China's FDI

in 2018

Psychological distance

Institutional factors Cultural factors Geographical factors Environmental factors

Foreign direct investment

Empirical model establishment

In order to better analyze the impact of psychological distance on China's FDI, this paper establishes the following empirical model.

）

，

（

IV

CV

F

OFDI

=

In Model (1), OFDI mainly refers to the amount of China's FDI; IV mainly refers to the four influencing factors of psychological distance; CV mainly refers to the control variables introduced in the process of empirical analysis, mainly including China's gross national product (GDP) and inflation rate of goods (INF).

Before conducting the empirical analysis according to Model (1), descriptive analysis and correlation analysis are needed for each variable. The specific results of descriptive statistics are shown in Table 2.

Table 2.

Descriptive statistical analysis of

variables

Variable Maximum Minimum Mean

value

Standard deviation

OFDI 0.1962 17.8256 8.6137 2.4623

IV 0.9213 4.4891 2.4929 0.4827

IF 0.7234 5.8472 3.1847 1.4397

CF 2.5475 7.1847 2.6583 0.9371

GF 6.1948 9.1135 4.2347 2.6382

EF 4.4043 8.1348 3.1235 2.4322

GDP 20.6543 98.1385 27.5824 10.9946

INF -17.4385 107.0934 6.2849 10.4857

Next, the correlation analysis of each variable is carried out, and the specific results are shown in Table 3.

According to the data in Table 3, it can be found that psychological distance has a significant negative correlation with FDI, and the

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four factors of psychological distance also have a negative correlation with FDI, which shows that the smaller the psychological distance is, the larger the total amount of FDI is. Among them, the correlation of cultural factors is not significant, while that of the other three factors is more significant.

Analysis of empirical results

During the empirical analysis on Model (1), the control variables remain unchanged, and the explanatory variables of psychological distance are added in turn for regression, and six regression results can be obtained. See Table 4 for the return results.

From the regression results in Table 4, it can be seen that psychological distance and the four factors it contains have a negative correlation with China's FDI, the influence of cultural factors is not significant, the effect of the other three factors is more significant, and the impact of environmental factors is the deepest. This also proves that with the reduction of psychological distance, the total amount of FDI increases, and the environmental factor has the greatest impact because it is directly related to the overall carrying capacity of the country (Mccreary, Turner, & Dawson, 1981).

Countermeasures and suggestions (1) Government level

The government should continue to

strengthen communication, exchange and cooperation with other foreign governments, fully understand local customs and culture, and enhance mutual understanding (Mendelson, 1984). It can make the host country's government and the general public recognize

our country's investment behavior

psychologically, so as to effectively shorten the psychological distance between countries and promote the development of China's FDI.

In addition, our government should also strengthen the understanding and adaptation to other countries' institutions. Only when our investment meets the requirements of other countries' institutions, can it be carried out smoothly.

(2) Enterprise level

Enterprises should continue to strengthen the publicity of their own brands and products so as to open the global market and make foreign customers have a full understanding on that. Foreign customers will continuously enhance

their psychological acceptance for our

enterprises and only in this way can we effectively reduce the negative impact of psychological distance on China's FDI (Lambie, Smith, & Ieva, 2009).

Table 3.

Correlation test of variables

OFDI IV IF CF GF EF GDP INF

OFDI 1

IV -0.147** 1

IF -0.279** 0.312** 1

CF -0.619 0.628** -0.284* 1

GF -0.284** 0.739** 0.516** 0.231** 1

EF -0.263** 0.315** 0.173** 0.482** 0.296** 1

GDP 0.387** -0.382** -0.183** 0.715** -0.224** 0.097** 1

INF 0.015** -0.176** -0.328** 0.037 -0.254** 0.186** -0.307* 1

Table 4.

Regression analysis of psychological distance and China's FDI

Variable Model 1 Model 2 Model 3 Model 4 Model 5 Model 6

C -2.784(1.927) -4.197(2.383) -4.062*(0.927) -7.931*(2.194) 4.174(1.423) -3.739(1.765)

GDP 0.734**(0.284) 0.418**(0.127) 0.571*(0.487) 0.693**(1.428) 1.328**(2.195) 0.718**(1.936)

INF 0.028**(0.916) -0.087(0.065) 0.076*(0.183) -0.037*(0.065) 0.417**(0.927) 0.006*(1.065)

IV -2.193**(0.827)

IF -0.638*(0.482)

CF 0.823**(1.276)

GF -0.627**(0.815)

PSYCHOLOGICAL ANALYSIS OF ECONOMIC INVESTMENT AND ESTABLISHMENT OF PSYCHOLOGICAL DISTANCE BASED ON RESOURCE CARRYING CAPACITY ₈₇₀

CONCLUSION

Based on the investment economic

psychology of resource carrying capacity, this paper studies China's FDI by establishing an empirical model from the perspective of psychological distance. The conclusions are as follows:

(1) at present, China's FDI has entered a stage of rapid development. The amount of FDI is growing, the investment field is expanding, and the investment area mainly includes Asia, Europe and the United States.

(2) in the process of investment economics analysis, psychological distance contains many factors. This paper proposes that psychological

distance mainly includes four aspects:

institutional factors, cultural factors,

geographical factors and environmental factors. (3) psychological distance has a significant negative correlation with FDI, and the four factors of psychological distance also have a negative correlation with it, indicating that the smaller the psychological distance is, the larger the total amount is. Among them, the correlation of cultural factors is not significant, while the impact of environmental factors is the deepest.

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