Ownership Structure in Foreign Direct Investment Projects

University of Illinois, Office of Reseach, CIBER Working Paper No. 98-108

49 Pages Posted: 22 Mar 1999

See all articles by Elizabeth Asiedu

Elizabeth Asiedu

Howard University - Department of Economics

Hadi Salehi Esfahani

University of Illinois at Urbana-Champaign

Multiple version iconThere are 2 versions of this paper

Date Written: September 1998

Abstract

This paper develops a theoretical model of equity composition in foreign direct investment (FDI) projects and applies it empirically to examine the role of firm, industry, and country characteristics in ownership structure. The results show that in choosing the ownership structure, foreign investors, local entrepreneurs, and governments consider the specific, costly-to-market assets that the participants and the country bring to the project. The equilibrium foreign equity share rises with the importance of foreign investor assets and declines with the contribution of local assets towards the amount of surplus generated in the FDI project. Government policy and institutional structure of the host country affect the outcome through the form of regulations that apply to FDI, the environment established for the operation of FDI projects, and the roles created for local entrepreneurs.

JEL Classification: F23, O27, G32

Suggested Citation

Asiedu, Elizabeth and Esfahani, Hadi Salehi, Ownership Structure in Foreign Direct Investment Projects (September 1998). University of Illinois, Office of Reseach, CIBER Working Paper No. 98-108, Available at SSRN: https://ssrn.com/abstract=152570 or http://dx.doi.org/10.2139/ssrn.152570

Elizabeth Asiedu

Howard University - Department of Economics

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Hadi Salehi Esfahani (Contact Author)

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