A Comparative Study on Location Choice of Outward Foreign Direct Investment between Korea and China: Focused on Institutional Quality

Abstract

Purpose The purpose of this study is to estimate the effect of the institutional quality of host countries on the location choice of outward FDI of Korea and China and discuss the reason for the different effects between the two. Design/Methodology/Approach FDI stocks of Korea and China are the dependent variable, and institutional quality of host countries is the independent variable. The analysis period is from 2011 to 2018. Panel regression is performed as an analysis method. Findings First, the coefficients of the institutional quality variable of Korea show significantly positive values while those of China are not significant. Second, both countries show significantly positive coefficients for GDP and natural resources variables, while labor cost variables show significantly negative coefficients. However, patent variables show significantly negative coefficients in Korea, whereas those of China show significantly positive coefficients. Research Implications The reason for the difference in the value and significance of institutional quality variables between Korea and China can be attributed to the difference in corporate governance between the two countries. While Korea has few state-owned enterprises, China has a very high proportion of state-owned enterprises in the national economy.