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FDI in Korea: The Permanent Achilles’ Heel?

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The South Korean economy stands as a model for many developing countries around the world. Not only did it rise up from the ashes of the Korean War and survive the 1997 Asian Financial Crisis, but it has maintained its position in the global economy through the greatest financial crisis since the Great Depression. Yet for all its accomplishments, the Korean economy has one glaring weakness when compared to its regional economic rivals: a dangerously low level of foreign direct investment (FDI). This was not always the case. Korea was once an attractive destination for foreign capital, especially in the years immediately following the Asian Financial Crisis. However, in January 2010, the Bank of Korea announced that FDI in Korea had reached a historic low, painting a grim picture of foreign investor confidence in Korea, and even suggesting that there is something seriously wrong with Korea as an investment destination. This paper finds that Korea is indeed subject to regulatory and governance mismanagement, and will need to weaken the economic domination of the nation’s chaebol if it is to attract foreign investment on a regionally comparable level.

Andrew Noh is a first-year M.A. student at SAIS, concentrating in Korea Studies. Through his SAIS education, Andrew hopes to explore the post-­ratification ramifications of the Korea-United States Free Trade Agreement and the challenges of foreign direct investment in South Korea. His additional academic interests include bridging the public-private divide in government policy making and the politics of free trade. Andrew earned his B.A. in Political Science and International Relations from the City College of New York (CUNY). Before coming to SAIS, Andrew worked under former U.S. Ambassador to South Korea, Thomas C. Hubbard, at McLarty Associates, where he consulted on corporate government relations issues and promoted private sector outreach for the KORUS FTA. He also interned at the U.S. State Department’s Korea Desk in 2007.