The Korean Economy in Transition

The Korean Economy in Transition

An Institutional Perspective

O. Yul Kwon

This informative book provides a comprehensive examination of the dynamics of institutional reform and the transition of the South Korean economy. The analysis, based on an institutional approach, stretches over three decades of remarkable economic success under a state-led system, through the 1997 financial crisis, to the current market-oriented system.

Chapter 6: Korea’s Inward and Outward Foreign Direct Investment

O. Yul Kwon

Subjects: asian studies, asian economics, economics and finance, asian economics


6. Korea's inward and outward foreign direct investment 6.1 INTRODUCTION Korea now plays an important role in the global economy both as a destination and as a source country for foreign direct investment (FDI). The economic benefits of FDI for the host economy are well explored in the literature. The Korean economy is in need of inward FDI not only to attract technology, capital and the managerial know-how of advanced countries, but also to spur domestic investment through creating supplier linkages and to improve its international competitiveness. Nevertheless, inward FDI in Korea has been waning in the recent past while outward FDI has been robust. As the Korean economy matures, some Korean companies have become multinational enterprises (MNEs) equipped with ownership of the competitive advantages necessary for successful foreign ventures. The chapter will critically examine and evaluate the system and institutions related to both inward and outward FDI. It will focus on inward FDI, something Korea is keener to attract than it is to promote outward FDI. It should be noted, however, that the systems of inward and outward FDI are related, because if the inward FDI system is not conducive to investment, outward FDI will expand. 6.2 RECENT DEVELOPMENTS IN INWARD FDI IN KOREA Inflows of FDI to Korea have increased remarkably since the 1997 crisis in response to the liberalization of the FDI regime and improvements in the business environment. FDI in Korea leaped from US$2.8 billion in 1997 to $5.1 billion in 1998, and further to...

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