Outward FDI and Trade: Evidence from the Bilateral Trade between Korea and Vietnam

Recent studies about FDI show that it is inappropriate to assume that FDI plays the same role in LDCs(less developed countries) as it does for DCs(developed countries). Thus we are interested in the relationship between FDI and trade, generated by two countries with different development level. FDI may increase the efficiency with which the world’s insufficient resources are used. Also, FDI relates to stimulate economic growth in many of the world’s poorest countries. Korea is the largest investor in Vietnam and its export has significantly risen. This paper estimates the potential effect of Korea’s outward FDI to Vietnam on its exports, using the data on 12 manufacturing sectors over the period 1992- 2006. Our empirical results indicate that Korean outward FDI to Vietnam has significantly positive effect on its exports, but no effect in import from Vietnam. This paper also provides evidence consistent with export-platform FDI. Korean outward FDI to Vietnam is host or third-country export-platform FDI where the exports are not sent back to the home.