Korea recognized the need to attract more FDI as a means to recover from the 1997 Asian financial crisis. To this end, the Act on Foreign Investment was enacted, which included streamlining FDI procedures, eliminating some regulations, and improving preferential tax treatment and incentives. The number of business categories subject to foreign investment restrictions was reduced from 113 in 1995 to 25 in 2008. Another major change in FDI policy concerned corporate mergers and acquisitions.
Even though global FDI trends shifted from greenfield investments to M&As during the 1990s, the Korean government did not allow much M&A activity involving foreign investors until it permitted friendly M&As in 1997. Restrictions on M&As were eased further because of the conditions tied to the IMF loans that Korea received. In 1998, hostile M&As were also allowed in Korea. As a result, the total amount of M&A-related foreign investment was 44 billion dollars in 2008, accounting for 31 percent of total FDI.
Table 4-19. Type of FDI in Korea
Source : SaKong, Il and Koh, Youngsun, 2010. The Korean Economy Six Decades of Growth and Development. Seoul: Korea Development Institute.