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The Role of Home and Host Country Characteristics in FDI: Firm-Level Evidence from Japan, Korea and Taiwan

Author

Listed:
  • Kazunobu Hayakawa
  • Hyun-Hoon Lee
  • Donghyun Park

Abstract

There is a large and growing empirical literature that investigates the determinants of outward foreign direct investment (FDI). This literature examines primarily the effect of host country characteristics on FDI even though home country characteristics also influence the decision of firms to invest abroad. In this paper, we examine the role of both host and home country characteristics in FDI. To do so, we constructed a firm-level database of outward FDI from Japan, Korea and Taiwan. Our empirical analysis yields two main findings. First, host countries with better environment for FDI, in terms of larger market size, smaller fixed entry costs and lower wages, attract more foreign investors. Second, firms from home countries with higher wages are more likely to invest abroad. An interesting and significant policy implication of our empirical evidence is that policy-makers seeking to promote FDI inflows should prioritize countries with higher wages.

Suggested Citation

  • Kazunobu Hayakawa & Hyun-Hoon Lee & Donghyun Park, 2013. "The Role of Home and Host Country Characteristics in FDI: Firm-Level Evidence from Japan, Korea and Taiwan," Global Economic Review, Taylor & Francis Journals, vol. 42(2), pages 99-112, June.
    • Handle: RePEc:taf:glecrv:v:42:y:2013:i:2:p:99-112
    DOI: 10.1080/1226508X.2013.791470
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    Cited by:

    1. Eugen-Mihai DRAGOMIR & Razvan Catalin DOBREA, 2025. "The Determinants of Foreign Direct Investment Inflows in Romania," Management and Economics Review, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 10(1), pages 22-40, February.
    2. Giammanco, Maria Daniela & Gitto, Lara, 2019. "Health expenditure and FDI in Europe," Economic Analysis and Policy, Elsevier, vol. 62(C), pages 255-267.
    3. Sebastian Tocar, 2018. "Determinants Of Foreign Direct Investment: A Review," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 21, pages 165-196, June.
    4. Helmi Hammami & Moez Hammami & Siriki Coulibaly & Mariem Marzouk, 2020. "Determinants of FDI attractiveness: A MCI model approach," Economics Bulletin, AccessEcon, vol. 40(2), pages 1033-1048.
    5. Yanfeng Liu & Miao Su & Jinjing Zhao & Sally Martin & Kum Fai Yuen & Choong-Bae Lee, 2023. "The determinants of China’s outward foreign direct investment: a vector error correction model analysis of coastal and landlocked countries," Economic Change and Restructuring, Springer, vol. 56(1), pages 29-56, February.
    6. Kazunobu Hayakawa & Fukunari Kimura & Hyun-Hoon Lee, 2013. "How Does Country Risk Matter for Foreign Direct Investment?," The Developing Economies, Institute of Developing Economies, vol. 51(1), pages 60-78, March.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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