Essays on how institutions matter in value creation : the Korean case

Abstract

This thesis is composed of three independent essays, which explores different aspects how institutions affect value creation. The first essay is titled "Caught in the Downside of Large-Firm Driven Development: Elite Engineers in the Korean Electronics Industry". Where foreign-educated R&D elites choose to work and pursue knowledge creation is a crucial issue in economic development. But the impact on knowledge creation of the organizations that employ such elites is still missing from discussion. The research presented here aims to fill the gap in the literature by addressing the institutional context of powerful organizations as employers of foreign-educated engineering talents, using the case of Korean engineering talents. The findings to be presented in this paper imply that a thriving home-country industry does not always have a positive impact on the best and brightest engineers. Instead, it can have unintentionally detrimental outcomes. This paper also suggests that corporate R&D managers in the Korean electronics sector have yet to develop an effective strategy to utilize extraordinarily gifted professionals. This research will be of interest to policymakers who aim to harness the skills of knowledge elites to upgrade their countries' economies, academics who study institutions' role in economic development, and business managers eager to adopt human-resource policies suited to highly educated R&D personnel. The second essay, "Multinational Firms, Labor Market Discrimination, and the Capture of Competitive Advantage by Exploiting the Social Divide" is a co-authored work with Professors Jordan Siegel and B.Y. Cheon. The organizational theory of the multinational firm holds that foreignness is a liability, and specifically that lack of embeddedness in host-country social networks is a source of competitive disadvantage; meanwhile the literature on labor market discrimination suggests that exploiting the bigotry of others can be a source of competitive advantage. We seek to turn the former literature somewhat on its head by building on insights from the latter. Specifically, we argue that multinationals wield a particularly significant competitive weapon: as outsiders, they can identify social schisms in host labor markets and exploit them for their own competitive advantage. Using two unique data sets from South Korea, we show that in the 2000s multinationals have derived significant advantage in the form of improved profitability by aggressively hiring an excluded group, women, in the local managerial labor market. Our results are economically meaningful, realistic in size, and robust to the inclusion of firm fixed effects. Multinationals, even those whose home markets discriminate against women, often show signs of having seen the strategic opportunity. Though the host market is moving toward a new equilibrium freer of discrimination, that movement is relatively slow, presenting a multiyear competitive opportunity for multinationals. Lastly, the third essay, "Do Institutional Affiliations Matter in Knowledge Creation? Quantifying the Institutional Impact on R&D Professionals", is an attempt to answer the questions raised in the first two essays using quantitative methods. Whereas prior research has shown that foreign-educated knowledge elites are critical to the development of their home economies, little attention has been paid how differing institutional incentives determine the nature and quality of their knowledge creation. This is partly due to the difficulty in compiling reliable data on a large sample of elite engineers' labor market choices and their knowledge creation over time. This study presents a novel empirical design to capture those data and their causal linkages. Combining multiple databases in an unprecedented fashion, we analyze the scientific output of Korean electrical engineering PhDs in relation to their organizational affiliations. As a result, we find strong evidence that the institutions do matter in how elite engineers produce meaningful knowledge.