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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Sung C. Bae & Kyungwon Ju & Kyoo H. Kim & Taek Ho Kwon, 2012. "Equity Ownership Determination in Foreign Direct Investments of Developing Economies: The Case of Korean Outward FDIs," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 15(01), pages 1-32.
    • Handle: RePEc:wsi:rpbfmp:v:15:y:2012:i:01:n:s0219091511500020
    DOI: 10.1142/S0219091511500020
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    More about this item

    Keywords

    Equity ownership; Korean outward foreign direct investment; developing economies;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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