South Korea foreign direct investment patterns alterations

Abstract

This research focuses on changes in South Korea’s patterns of outward Foreign Direct Investment (FDI) to top 10 FDI partners with a particular attention to free trade agreements (FTA). In order to test the hypothesis whether an economic and trade liberalization alter FDI patterns of South Korea, the author analyses a correlation between the FDI to a particular country and variety of variables that could be arranged into 3 groups: production factors, trade factors and general socio-economic factors. Using the combinations of the factors, 4 regression models with random effects were introduced. Each model represents certain approach to the pattern analysis with prevailing one of the group of variables described above and the forth model is a synthesis of all factor groups. Results of the analysis reveal that the model based on production factors has the best estimates on the data of all 10 countries overall. While after a segmentation of countries into groups, the most preferable model could vary considerably. Thus, the group of developing countries still fits the production model best, at the same time the group of developed counties is better characterized by trade variables and FTA has produced a significant impact on FDI volume to the countries. All these findings corroborate the inference that trade liberalization and preferential agreements have altered the investment particular groups of countries yet did not affect South Korea FDI patterns as a whole.