Analysis of foreign affiliate efficiency and determinants: evidence from Korean multinational firms

Multinational firms establish foreign affiliates to reduce production and transaction costs and open markets. This study was conducted to determine whether foreign affiliates are efficient in production-the efficiency of foreign affiliates established by Korean multinationals through foreign direct investment from 2007 to 2018. DEA efficiency was measured by dividing it into pure, technical, and scale efficiency. An empirical analysis using the panel Tobit and Probit models examined the factors affecting efficiency decisions. It was confirmed that the total number of foreign affiliates' employees significantly affects their efficiency. In addition, it was analyzed that establishments with traditional FDI motives, such as taking advantage of low wages and promoting exports, harm the efficiency of foreign affiliates.