Economic freedom of the world: wholly owned subsidiaries and joint ventures as binary response

Abstract

Drawing on the institutional perspective, the economic freedom index along with its sub-components are analysed and their impact on the choice between wholly owned subsidiary and joint venture investments from India is empirically tested. The results of the binary logistic model reveal that economic freedom and all its sub-components are decisive factors in explaining the choice of entry modes. More specifically, rule of law, government size, and market openness positively determine the probability of wholly owned subsidiary over joint venture while regulatory efficiency and overall economic freedom index are negative regressors while controlling for market size and market stability. The distinguishing feature of the study is that foreign market entry choice from an economic freedom perspective is not present in the extant literature, so this study enriches the literature in this regard. Further, besides the expected probability of choosing a particular entry mode, the marginal change across the variables is also analysed.