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Policy Implications of Korea’s low level of foreign direct investment

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  • Policy Implications of Korea’s low level of foreign direct investment
  • Alexander, Arthur J.
  • The U.S.-Korea Institute at SAIS


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Title Policy Implications of Korea’s low level of foreign direct investment
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Material Type Reports
Author(English)

Alexander, Arthur J.

Publisher

Washington, DC:The U.S.-Korea Institute at SAIS

Date 2008-12
Series Title; No Korean Economy Series / 08-03
Pages 27
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Direct Investment
Holding The U.S.-Korea Institute at SAIS

Abstract

Korea is notable for its relatively low value of inward foreign direct investment (FDI).1 FDI flows into the country are considerably less than those seen in other middle-income economies. In recent years, they have averaged around 0.7-0.8 percent of GDP, whereas the rate for all middle-income countries is almost 3 percent. (World Bank 2007) The policy implications of Korea’s low level of FDI are the main issues addressed in this report.
In the early stages of Korea’s industrialization, the country restricted FDI, relying instead on foreign long-term loans to finance domestic investment. However, in the 1997-98 financial crisis that affected Korea, along with many of its neighbors, Korea agreed to the International Monetary Fund’s conditions to open its economy to foreign investment. In addition, domestic policy makers recognized that further development would require the participation of foreign firms with their specialized knowledge, technology, and competition.
As the policy direction underwent dramatic reorientation, many laws and regulations were changed immediately. Others changes were in response to impediments uncovered by the growth of FDI. The government also established two FDI promotional agencies. Nevertheless, old habits have been slower to change and several residual barriers to FDI continue to retard a more vigorous foreign involvement. Despite significant shifts in policy directions, FDI remains at relatively low levels.

User Note

This paper was prepared exclusively for the U.S.-Korea Institute’s Korean Economy Working Paper Series.