Equity Ownership Determination in Foreign Direct Investments of Developing Economies: The Case of Korean Outward FDIs

Sung C. Bae (), Kyungwon Ju, Kyoo H. Kim and Taek Ho Kwon
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Sung C. Bae: CBA, Bowling Green State University, Bowling Green, OH 43403, USA
Kyungwon Ju: Chungnam National University, Daejon, Korea
Kyoo H. Kim: CBA, Bowling Green State University, Bowling Green, OH 43403, USA
Taek Ho Kwon: Chungnam National University, Daejon, Korea

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2012, vol. 15, issue 01, 1-32

Abstract: In this paper, we develop an international joint venture model and examine the equity ownership determination of Korean outward FDIs, one of the major developing economies (DEs), into both developed countries (DCs) and other DEs. We do this by explicitly considering the cost of technology leakage and the potential profits from FDI projects. Our results show that the relation between equity ownership and technology level depends on both the host country and industry sector. Regarding the host country, this relation is positive for FDIs into DEs but negative for FDIs into DCs. Regarding industry, this relation is positive and insignificant for the manufacturing sector but negative and significant for the nonmanufacturing sector. Combined together, these results indicate that Korean firms benefit most from competitive advantages through their FDIs into the manufacturing sector of DEs. In contrast, such competitive advantages of Korean firms diminish in their FDIs into DCs regardless of the industry sector.

Keywords: Equity ownership; Korean outward foreign direct investment; developing economies (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1142/S0219091511500020

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