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Empirical Methods in International Trade

Essays in Honor of Mordechai Kreinin

Edited by Michael G. Plummer

Internationalization of the world economy has made trade a key factor in the growth potential of nearly every nation’s economy. Hence, economists have become increasingly interested in the determinants of international trade and competitiveness. Empirical Methods in International Trade captures the many aspects of this trend in globalization through practical techniques well-founded in economic theory. The authors, comprising some of the most influential applied international economists of their generation, use cutting-edge models to develop empirical approaches to critical aspects of economic interchange. These approaches are developed and explained carefully with the goal of making them accessible to a wide audience.
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Chapter 11: Korea’s Direct Investment in China and its Implications for Economic Integration in Northeast Asia

Joon-Kyung Kim and Chung H. Lee


* Joon-Kyung Kim and Chung H. Lee 1. INTRODUCTION Economic relations between the Republic of Korea (henceforth Korea) and the People’s Republic of China (henceforth China) have been expanding ever since China undertook the Four Modernization reforms in the late 1970s. Ever since then, bilateral trade between the two countries has been growing steadily in terms of both volume and variety of goods traded. Capital flows between the two have likewise been increasing although the flows have been mostly from Korea to China and in the form of direct investment. Between 1989 and 2000, for instance, Korea’s merchandise exports to China grew from $213 million to $18.4 billion while China’s merchandise exports to Korea grew from $3.9 million to $11.3 billion (ICSEAD, 2002). In fact, China has now emerged as Korea’s third largest trading partner. Also, by the end of 1999 Korea had invested $4.3 billion in China, where it had virtually no investment before the late 1970s, and in the year 2000 alone Korea invested $307 million in China (China Statistical Press, 1999; Lee, 2001). These increases in both trade and investment are signs of growing economic interdependence and integration of the two economies, which, we expect, will further economic growth in both countries.1 China and Korea are two key players in Northeast Asia, a region that stretches from Japan on its eastern edge to the Mongolian People’s Republic in the west and the Russian Federation’s Far Eastern provinces in the north. It is one of the most dynamic regions...

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