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[Vol.21 No.2] The Determinants of FDI and Suggestions of Recent Changes in Korea

Group :
Economic Research Institute (+82-2-759-4434) 2015.06.30 2890

Authors : Chang Hyun Park(the Bank of Korea), Hangseo Cho(the Bank of Korea), Sung Hee Ahn(the Bank of Korea), Jongik Park(the Bank of Korea)




The outward FDI stock of Korea has been higher than its inward FDI stock since the 2008 Global Financial Crisis. According to an estimation based on the relationship between the FDI stock and income in advanced countries, however, Korea's outward the FDI stock should be less than its inward stock at the current income level. Such a gap between the actual data and estimation has shown that Korea's current situation is atypical. Meanwhile, the results of analysis on the determinants of FDI has shown that market size in host regions, openness, and relative wages are statistically significant determinants.
In the years to come, outward FDI would continue to rise due to globalization. Thus a diversified set of measures should be prepared to ensure that inward and outward FDI rise in a balanced manner. First of all, the regulations that inhibit foreign companies’ FDI in Korea should be relaxed. Also, measures to have overseas production facilities return to the country should be strengthened. Finally, through enhanced cross-border labor divisions and production-sale networks, FDI needs to be conducive to domestic investment and employment.