Abstract: Through measuring whether the direction of cultural distance affects bilateral foreign direct investment, it is found that the direction of cultural distance matters when a host and a home country differ in uncertainty avoidance. More specifically, bilateral FDI activities are negatively related to the net difference in uncertainty avoidance between home and host countries. That is, when a home country′s uncertainty avoidance is greater than a host country, increasing the difference in uncertainty avoidance reduces FDI. When a home country′s uncertainty avoidance is lower than a host country, increasing difference in uncertainty avoidance encourages FDI. And the direction effect of cultural distance is more prominent among low uncertainty avoidance countries′ FDI activities. Therefore, the direction of cultural distance in uncertainty avoidance should be taken into consideration when China involves in FDI activities. On the one hand, as a home country, China should choose countries whose uncertainty avoidance scores are higher and cultural distances in uncertainty avoidance are greater to invest, and choose countries whose uncertainty avoidance scores are lower and cultural distances in uncertainty avoidance are less to invest. On the other hand, as a host country, China should attract countries whose uncertainty avoidance scores are less and cultural distances in uncertainty avoidance are greater to invest, and attract countries whose uncertainty avoidance scores are greater and cultural distances in uncertainty avoidance are less to invest in China.

Key words: uncertainty avoidance, cultural distance, directive effect, bilateral FDI