Economic Integration in East Asia
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Economic Integration in East Asia

Perspectives from Spatial and Neoclassical Economics

Edited by Masahisa Fujita, Satoru Kumagai and Koji Nishikimi

Increasing numbers of free trade and economic partnership agreements have been concluded among many countries in East Asia, and economic integration has progressed rapidly on both a de facto and de jure basis. However, as the authors of this book argue, integration may intensify regional inequalities in East Asia and so this process has attracted much attention of late. Will it actually succeed in achieving greater economic growth or will it in fact cause growing regional disparity?
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Chapter 8: Location Choices of Korean MNEs in East Asia: Escaping the Nutcracker

Ho Yeon Kim


Ho Yeon Kim INTRODUCTION 8.1 The increasing role of FDI in global economic development is now widely recognized. FDI emanates from location decisions of MNEs that roam across national borders to maximize their profits. Multinational production, investment and trade are becoming ever more important. As Markusen and Venables (1999) point out, the general view in the 1970s was that multinational investment was detrimental to the welfare of host economies, creating monopoly situations. In the 1990s, however, views became much more optimistic, suggesting that multinationals may stimulate development in host economies. Indeed, FDI represents the cutting edge of globalization; it is a unique bundle of capital and managerial/ technological knowledge. Multinational firms are constantly in action reshaping production and trade patterns around the globe. East Asia is no exception. Following the collapse of the Bretton Woods regime in the 1970s, as Mason (1999) notes, the value of the yen appreciated sharply and escalated production costs in Japan. A coincident increase in real wage rates encouraged the migration of labor-intensive manufacturing industries to Korea, Taiwan, Hong Kong, and later to China and the countries of the ASEAN. In the late 1990s, the consultant firm of Booz, Allen and Hamilton (1997) warned that Korea was now caught in a nutcracker, being crushed by China’s low costs and Japan’s technical excellence. It is thus interesting to examine how Korean firms responded to the daunting challenge. Against the above backdrop, this chapter opens with a brief survey of the related literature. The development of...

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