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The Changing Nature of Foreign Direct Investment in Korea: Challenges to Economic Policy

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Foreign direct investment (FDI), defined as sufficient company ownership that provides some degree of managerial control, improves a nation’s productivity and economic growth. Until the 1997 East Asia financial crisis, the Korean government exercised a de facto policy of discouraging inward FDI. However, as part of its acceptance of IMF support to resolve the crisis, the government opened the economy to foreign ownership of domestic business. In the years after the crisis, foreign investment surged. However, despite these changes, Korea still lags other developed and developing countries as a target for FDI. We are investigating the changing nature of FDI into the country, the policy and political responses, and the concerns in the country that may induce a cautious approach by administrators.

In order to understand better the changing nature of Korean inward FDI, we are assembling data broken down by industry, financing method, and type of investor. We will analyze the policy and regulatory implications by considering the domestic industries and companies that may face greater competition; and the government agencies that will be involved together with their regulatory and organizational imperatives. New patterns of FDI create the potential for counterattacks by negatively affected parties. We shall attempt to predict such barriers in advance to alert policymakers and others about possible future problems. We will attempt to understand how the changing nature of FDI into Korea may affect future economic outcomes in ways that may differ from past influences.