Is the relationship between foreign direct investment and trade different across developed and developing countries? Evidence from Korea

Abstract

Empirical studies that pool data from developed and developing countries may conflate the separate roles played. The pooled coefficient estimates may significantly misrepresent the true relationships. This paper analyses the impact of outward and inward foreign direct investment (FDI) flows between Korea and developed and developing countries on Korean exports in 12 manufacturing sectors over the 1988-2006 period. The evidence suggests that the outward FDI to developing countries is likely to increase Korean exports to those countries than FDI to developed countries likely to increase exports to developed countries. Thus, pooling investment flows can lead to incorrect inferences.

Impact of outward FDI on home country exports

“…In case of industry level studies and firm level studies there is some consensus in their results obtained. Most of the studies have found a complementary relationship (Kim, 2000;Head and Ries, 2001;Lim and Moon, 2001;Lipsey and Ramstetter, 2003;Chow, 2012;Kang, 2012;Engel and Procher, 2013). The number of industries with complementary relationship is more than the negative ones (Forte and Silva, 2017).…”

Effect of Foreign Direct Investment on Bilateral Trade: Experience From Asian Emerging Economies

“…The complementary relationship between FDI and trade are also known as vertical FDI (Helpman, 1984), and the substitute relationship between FDI and trade are also known as horizontal FDI (Markusen, 1984). Vertical FDI occurs when a firm combines its advanced technologies with cheap resources in less developed economies, also known as efficiency-seeking FDI (Kang, 2012). Cost consideration motivates such type of FDI (Fonseca & Passos, 2016).…”

“…Cost consideration motivates such type of FDI (Fonseca & Passos, 2016). Horizontal FDI occurs when a firm desires to invest in the same advanced economy (Kang, 2012). It refers to bilateral investment between developed economies, also known as market-seeking FDI.…”

The Effect of Outward Forei̇gn Di̇rect Invesment on Forei̇gn Trade: Panel Data Analysi̇s

“…Doğrudan yabancı yatırım çıkışlarının, ana ülkenin ihracatı üzerindeki etkisi Model 1 ile test edilmiştir. Bu modelde, doğrudan yabancı yatırım çıkışlarının ana ülkenin ihracatını pozitif yönde (Clausing, 2000;Kang, 2012;Quer vd., 2012;Ahmad vd., 2016;Nkuna, 2016;Alkın ve Türkcan, 2018) etkilediği saptanmıştır. Araştırma bulguları, doğrudan yabancı yatırımın yapıldığı ev sahibi ülkede kullanılan bazı ara malların, ana ülkeden temin edildiğini işaret etmektedir.…”