Determination of equity ownership is one of the most important factors in foreign direct investments (FDI). In this paper, we develop an international joint venture model and test the predicted relations between the equity share ratio and a host of variables for Korea as an example of emerging economies (EEs). We find that the equity share ratio of Korean FDI increases as the profit from a FDI project increases but as its size decreases. Our results also show that the relation between the equity share ratio and the level of technology depends on both the host country and industry sector of Korean FDI. For host country, the equity share ratio is positively related to the technology level for Korean FDIs into EEs but negatively to that for Korean FDIs into developed countries (DCs). For industry, this relation is positive but insignificant for the manufacturing sector and negative and significant for the non-manufacturing sector. These results indicate that, as one of the major EEs, Korea benefits most from competitive advantages through its FDIs into the manufacturing sector of EEs as Korean manufacturers are more dominant players than local partners. On the other hand, such competitive advantages of Korean firms diminish in their FDIs into DCs regardless of the industry sector and hence are not associated with greater control in these FDIs. Similar results are obtained for the relation between the equity share ratio and the host country risk, implying that Korean firms typically take a larger stake in their FDIs into the manufacturing sector of EEs by expecting higher investment returns from countries with greater risk, a unique feature of Korean FDIs. Overall results of this paper suggest that FDIs by EEs should be understood differently from FDIs by DCs.
Keywords: foreign direct investment; equity share; emerging economies; Korea
