ABSTRACT

This chapter aims to compare the two types of foreign direct investment (FDI): their determinants and their effect on investing firms. It examines the actual FDI actions of firms, focusing on the different determinants of FDI in high-wage and low-wage countries. The chapter includes ROF so as to examine the relationship between equity ownership and the decision to invest abroad. It begins with a single equation PROBIT regression to examine the relationship between the explanatory variables that represent firm characteristics and the dependent variable that indicates whether or not the corresponding firm has invested. Taiwanese firms embarked on a course of active overseas investment in 1986, Concurrent with this wave of FDI, domestic wage rates increased rapidly and the local currency appreciated dramatically. The chapter explores four indicators of performance: sales, profit, exports and employment. The group of firms investing in both high-wage and low-wage countries had the highest level of exports. Employment is another popular indicator of firm size.