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Regional heterogeneity and location choice of FDI in Korea via agglomeration and linkage relationships

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  • Ki-Dong Lee
  • Seok-Joon Hwang

Abstract

Using the extensive micro data for 1998–2005, we analyze the role of agglomeration effects in terms of both horizontal and vertical aspects in the location decision of inward foreign direct investment (FDI) in Korea. The nested logit estimates support the follow-the-leader hypothesis. The network among FDI firms, backward linkage relationship with local upstream firms, and business service agglomeration are the main determinants of FDI location. Our estimation results suggest the possibility of a circular causality between the attractive force of backward agglomeration and the knowledge spillover of FDI, which brings in the geographical concentration of economic activities within a region. In addition, we find quite different location patterns between high- and low-tech industry groups. Reflecting the characteristics of the industry, whereas the centripetal force of foreign agglomeration increases gradually in the high-tech industry, it decreases gradually with the size of agglomeration in the low-tech industry. Furthermore, while regional gap of the labor cost matters in the location decision of low-tech firms, the regional quality of labor matters for the high-tech firms.

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  • Ki-Dong Lee & Seok-Joon Hwang, 2014. "Regional heterogeneity and location choice of FDI in Korea via agglomeration and linkage relationships," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 19(3), pages 464-487, July.
    • Handle: RePEc:taf:rjapxx:v:19:y:2014:i:3:p:464-487
    DOI: 10.1080/13547860.2014.908535
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    References listed on IDEAS

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    1. Vassilis A. Hajivassiliou & Daniel L. McFadden, 1998. "The Method of Simulated Scores for the Estimation of LDV Models," Econometrica, Econometric Society, vol. 66(4), pages 863-896, July.
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    1. Klimek Artur, 2018. "Agglomeration Economies and Foreign Direct Investment in Advanced Business Services in Poland," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 54(1), pages 69-79, March.
    2. Felipe J. Fonseca & Irving Llamosas-Rosas, 2019. "Spatial linkages and third-region effects: evidence from manufacturing FDI in Mexico," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 62(2), pages 265-284, April.
    3. Tomás Silva & Sérgio Lagoa, 2018. "Corporate Taxes And The Location Of Fdi In Europe: The Importance Economic Integration And Project Characteristics," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 63(217), pages 39-74, April – J.
    4. Nielsen, Bo Bernhard & Asmussen, Christian Geisler & Weatherall, Cecilie Dohlmann, 2017. "The location choice of foreign direct investments: Empirical evidence and methodological challenges," Journal of World Business, Elsevier, vol. 52(1), pages 62-82.
    5. Llamosas-Rosas Irving & Fonseca Felipe J., 2018. "Determinants of FDI Attraction in the Manufacturing Sector in Mexico, 1999-2015," Working Papers 2018-07, Banco de México.
    6. Mariana SEHLEANU, 2020. "Foreign Participation In The Share Capital Of Companies In Romania €“ A Regional Analysis," Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 14(1), pages 33-42, November.
    7. Ki-Dong Lee & Seok-Joon Hwang, 2016. "Regional Characteristics, Industry Agglomeration and Location Choice: Evidence from Japanese Manufacturing Investments in Korea," Asian Economic Journal, East Asian Economic Association, vol. 30(2), pages 123-145, June.

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