Determinants of Entry Mode Choice of Mncs into Emerging Markets: Some Evidence from South Africa and Egypt

Abstract:     
It is now stylized that the importance of FDI for developing countries and emerging markets arise from the impact of the presence of multinational corporations (MNCs) in the host country on the productivity of the local firms, by way of technology diffusion and competition. There is also general agreement about the fact that the extent of technology transfer by a MNC to a developing country affiliate depends on the extent of its control on the local affiliate and that, in turn, the extent of this control depends on the mode of entry of the MNC into the host country. However, the existing literature is based on the experience of developed countries and does not make any contributions to the development economic literature. This paper addresses this lacuna using unique firm level data from South Africa and Egypt. Our results indicate that the determinants of entry mode choice not only differ between developed and developing countries, but also among developing countries. They also bring into question the reality about the role of MNCs in fostering productivity growth in developing countries.

Keywords: MNC, entry mode choice, technology transfer, local institutions, local knowledge

JEL Classification: D21, D23, F23, L14, L21

Accepted Paper Series