The Rise of China and Structural Changes in Korea and Asia

The Rise of China and Structural Changes in Korea and Asia

Edited by Takatoshi Ito and Chin Hee Hahn

This book brings together studies conducted by researchers in East Asian countries who seek to better understand the impact of China’s rise and the consequent policy challenges.

Chapter 7: The Impact of Outward FDI on Export Activities: Evidence from the Korean Case

Siwook Lee

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


* Siwook Lee INTRODUCTION 7.1 In recent years, the world has witnessed a remarkable proliferation of foreign direct investment (FDI) across borders, largely spurred by the accelerated liberalization trend of national FDI policies and the expansion of the global production network. Between 1980 and 2005, worldwide FDI outflows grew about 14.5-fold, while trade flows and gross domestic product (GDP) have increased by around 5.3 and 4.1 times, respectively. Nowadays, multinational corporations (MNCs) account for two-thirds of the world trade, of which a half is in fact intra-firm trade, an in-house transaction between parent firms at home and their subsidiaries in foreign lands. Korea had been traditionally a government-led, export-oriented economy with little emphasis on FDI. Consequently, Korea had been relatively closed off from world markets in terms of both inward and outward foreign direct investment. Since the mid-1990s, however, the situation has been drastically changed. In the course of massive restructuring and downsizing efforts since the financial crisis in 1997, Korea’s leading companies, especially in major exporting sectors such as semiconductors, IT and automobiles, pursued new business strategies with a special emphasis on outsourcing and offshoring. This indicates that the rapid increase of recent Korean outward FDI can be attributed in large part to the globalization of businesses, such as in establishing global vertical production and distribution networks. Facing the surge of outbound FDI, increasing attention has been paid to the impacts of the FDI-mediated corporate globalization on exports from the home country. Some argue that the expansion of outward FDI...

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