The Restructuring of SOEs, the Growth of Private Firms, and Korean Firms’ FDI in China

The Chinese government has restructured many state-owned enterprises (SOEs) and encouraged the growth of private firms to improve the efficiency of industry structure and increase competitiveness. There is a large quantity of theoretical and empirical literature on FDI location selection, but most works have mainly focused on economic factors and failed to adequately reflect the changing trends in the Chinese market. Among many of the changing environmental factors, we focused on the institutional environment and investigated the role of the restructuring of state owned enterprises and the growth of privatized firms on Korean firms’ location choices. With samples of Korean manufacturing firms invested in 31 cities and provinces from 1989 to 2011, we analyzed the determinants of location choice with the dependent variable measured by total investment amount. Using Tobit regression analysis, we found that the number of SOEs and the industrial output share of SOEs are significantly and positively related with Korean firm’s location selection.