Economic Impact of Korea’s Outward FDIs into Developed and Developing Economies across Industries

Along with the growth of Korea’s outward foreign direct investments (FDI), the concern for the so-called ‘hollowing-out’ effect has grown as well. This paper aims to empirically assess the impacts of Korea’s FDI on Korea’s exports and employment by using time-series and panel analyses. Particularly, the paper compares the impact of Korea’s FDI into developed countries with the impact of Korea’s FDI into developing countries. The manufacturing sector is categorized into 11 sub-industries to account for the possible industry-specific effects. According to the time series analysis, the FDI in China caused exports in several capital-intensive industries. According to the panel analysis, FDI induced more exports, and this effect is particularly strong among Korea’s FDIs in developing economies. In particular, Korea’s FDI in China has induced more exports, but Korean domestic employment has suffered. Employment problems like this are more severe in labor-intensive industries.