Productivity and Timing of Foreign Direct Investment: Evidence Based on Korean Direct Investment in China

Author : Sangho Kim


  This study investigated the value of waiting with regard to firms’ decisionmaking about foreign direct investment (FDI) in the context of productivity. To this end, a Cox (1972) proportional hazards model was applied to FDI data gathered from Korean manufacturing firms in China. Empirical results revealed that firms with average production led FDI, followed by more productive firms (which delayed their FDI to lower the probability of FDI failure) and by less productive firms (which had insufficient resources to implement such investment). The findings suggest that FDI delay time is a non-linear function of a firm’s productivity. Industry-wide regression analysis of two industries demonstrated that the results held for the chemical industry.


JEL Classification Number: G30, D80, F10
Keywords: FDI, Value of waiting, Cox hazards model