Motivations and locational factors of FDI in CIS countries: Empirical evidence from South Korean FDI in Kazakhstan, Russia, and Uzbekistan

TL;DR

This study analyzes South Korean FDI in Kazakhstan, Russia, and Uzbekistan, revealing market and resource-seeking motivations influenced by economic and resource factors, with policy suggestions for host and home governments.

Contribution

It provides empirical evidence on the motivations and locational factors of South Korean FDI in CIS countries using panel analysis from 1993 to 2017.

Findings

FDI is driven by GDP, resource endowments, and inflation.

Labour-seeking is not a primary motive for South Korean FDI.

Market and resource-seeking are key motivations, especially in Kazakhstan and Russia.

Abstract

Considering the growing significance of Eurasian economic ties because of South Korea s New Northern Policy and Russia s New Eastern Policy, this study investigates the motivations and locational factors of South Korean foreign direct investment (FDI) in three countries in the Commonwealth of Independent States (CIS: Kazakhstan, Russia, and Uzbekistan) by employing panel analysis (pooled ordinary least squares (OLS), fixed effects, random effects) using data from 1993 to 2017. The results show the positive and significant coefficients of GDP, resource endowments, and inflation. Unlike conventional South Korean outward FDI, labour-seeking is not defined as a primary purpose. Exchange rates, political rights, and civil liberties are identified as insignificant. The authors conclude that South Korean FDI in Kazakhstan, Russia, and Uzbekistan is associated with market-seeking (particularly in Kazakhstan and Russia) and natural resource-seeking, especially the former. From a policy perspective, our empirical evidence suggests that these countries host governments could implement mechanisms to facilitate the movement of goods across regions and countries to increase the attractiveness of small local markets. The South Korean government could develop financial support and risk sharing programmes to enhance natural resource-seeking investments and mutual exchange programmes to overcome the red syndrome complex in South Korean society.