Trends and Determinants of South Korean Outward Foreign Direct Investment

Abstract

This paper examines the trends and determinants of South Korean outward foreign direct investment (FDI) and the extent to which location decisions in a single country need to be nested within the general theory of the multinational firm. In a conceptual framework analysis, the patterns of South Korean outward FDI exhibit several different types of motivations for going abroad. We empirically examine the important factors for the location decisions of South Korean outward FDI, considering host countries at very different stages of economic development. In line with this objective, we test the determinants of South Korean outward FDI using macroeconomic factors of host countries. Thus, we both identify several factors that affect such trends and develop hypotheses that could explain the phenomenon generically. We test our hypotheses using official South Korean outward FDI data collected from 1994 to 2005. Several distinctive features correspond to the behaviour of South Korean multinational firms. As a result, we find that the dynamic effects of economic development have influenced the changing character of outward FDI.