Structural Adjustment and Outward Direct Foreign Investment in Korea

Abstract

This paper aims at analyzing the patterns of outward direct foreign investment by Korean firms in relation to the structural changes in the Korean economy since the late 1980s. Korean investment in China is single-factor dominated, seeking mainly cheap labor for export-oriented production, and there is relatively little, local-market oriented DFI. The rise of China as strong attraction for Korean labor-intensive DFI prompted the relative decline of Korean labor-intensive DFI in ASEAN during 1991 and 1992. Thus, more recent Korean DFI in ASEAN is becoming more capital-intensive DFI, whereas prior to 1990 Korean DFI in ASEAN was primarily cheap-labor oriented and only secondarily related to the local market for final goods. Korean investment in Western Europe and North America has been local-market oriented and dominated by the three sectors of electronics, industrial and other chemicals.