A Comparative Empirical Examination of Outward Foreign Direct Investment from Four Asian Economies: People’s Republic of China; Japan; Republic of Korea; and Taipei, China

Abstract

This paper compares and contrasts the determinants of outward foreign direct investment from the People’s Republic of China (PRC) with those of outward foreign direct investment from Japan, Republic of Korea, and Taipei,China. The paper examines descriptively and econometrically the motives and factors behind the investment abroad from these four Asian economies. The hypotheses being tested include the market-seeking hypothesis, the natural resource-seeking hypothesis, the technology acquisition hypothesis, and the human capital hypothesis. The paper examines outward foreign direct investment by the PRC for the years 1991–2006, Japan for 1983–2007, the Republic of Korea for 1980–2007, and Taipei,China for 1968–2007. Results using the full set of determinants yield uniform support for the market-seeking hypothesis. The natural resource-seeking motive holds for Japan and the Republic of Korea, while the technology acquisition hypothesis seems relevant for Taipei,China. The PRC’s investments tend to go to destinations with poorer labor quality. In addition, openness is important for Japanese investment abroad, while distance deters investment from the PRC and Republic of Korea.