The determinants of foreign divestment in South Korea

Abstract

Purpose This paper aims to enhance empirical research on foreign divestment and international relocation by multinational firms are still limited and understudied, although these issues have been a frequent phenomenon and carry important economic implications. Design/methodology/approach The paper investigates the trends of foreign divestment in South Korea and examines firm- and host country-level determinants in total, manufacture and service sectors from 2010 to 2019. Findings Using probit model analysis, the main findings are first, among the firm-level factors, sales revenue and parent firm dummy are shown as negative and significant determinants of foreign divestment especially in manufacturing sector. Second, among the country-level factors, gross domestic product growth rate and regulatory quality that measures perceptions of sound policies that promote private sector development are shown negative and significant determinants of foreign divestment. On the other hand, relationship between the environmental policy stringency and foreign divestment is shown positive and significant. Originality/value The results suggest that these nonfirm-specific characteristics are also important factors in firm decision to divest from the host country.