Dynamic Impacts of FDI, Fiscal Policy and Trade on Korea’s Economic Growth: Evidence from Asymmetric ARDL and VAR Approaches

Purpose - This study investigates the macroeconomic determinants of economic growth in Korea, focusing on the dynamic roles of foreign direct investment (FDI), government expenditure, exchange rates, trade openness, taxes on trade, and savings. The research aims to clarify how these factors have influenced Korea’s growth trajectory, especially across periods of structural transformation and economic crisis. Design/Methodology - Employing a comprehensive econometric approach, the study utilizes multivariate time-series analysis, including cointegration tests, vector autoregression (VAR), and an asymmetric autoregressive distributed lag (ARDL) model. Data spanning 1970-2022 from the World Bank’s World Development Indicators are analyzed to distinguish both short- and long- run relationships. Findings - The results reveal that FDI has a significant positive effect on growth in the long run, particularly before the 1997 Asian financial crisis, but its impact diminishes and turns insignificant post-crisis. Exchange rate depreciation consistently hinders growth, while trade openness becomes increasingly influential after 1997. Government expenditure and domestic savings show significant negative associations with growth, suggesting inefficiencies in public spending and challenges in channeling savings into productive investment. Granger causality and VAR analyses underscore the central role of fiscal policy and savings in driving both economic growth and exchange rate stability, with delayed but notable impacts from trade policy. Originality/value - This study advances the literature by integrating asymmetric ARDL modeling to capture the time-varying and directionally distinct effects of macroeconomic variables on growth. By partitioning the analysis around Korea’s structural breaks and employing robust causality diagnostics, it provides nuanced, policy-relevant insights into the evolving determinants of growth in a rapidly transforming economy