The Characteristics and Implications of Japanese Foreign Direct Investment into Korea: An Analysis Based on Statistical Data from Both Countries

Abstract

The purpose of this study is to analyze Japanese FDI into Korea after the year 2000 and its recent reduction. This study is based on statistical data from Japan and Korea, and outlines policy strategies toward expanding this investment. The analysis makes several points: That Korea has to compete with other Asian countries to receive investment from Japan, but lacks an advantage; that the FDI into Korea is around two percent of the Japanese outward FDI, which recently decreased to around one percent; that Japanese FDI into Korea is occurring under such circumstances where Japanese outward FDI in general has shown expansion in non-manufacturing industries in recent years; that the amount of Japanese investment after 2000 has increased, but overall the proportion of Japanese direct investment in Korea has decreased, dropping under ten percent after 2015; and that Japanese investments are still concentrated in the manufacturing industry. There are several findings related to the recent decrease in Japanese investments: That the Japanese proportion has decreased, yet the investment amount itself remains at the previous level; that political conflict is one reason for the decrease in Japanese investments; that the specific details of investment activities are positive, even though investment is not expanding. This study suggests policy interests could encourage Japanese FDI through the following measures: Korea should enhance its advantage as a production base to invite high-quality Japanese investments; investment in the research and development areas of the service sector needs support; and political conflicts between Korea and Japan need to be minimized while civil exchanges need to be increased. As this analysis was conducted at a macro level, its efficacy is somewhat limited. To overcome this, several future research subjects are suggested in conclusion.