This paper seeks to investigate the impact of Korea's foreign direct investment (FDI) liberalization on its economy. Estimation of externalities in production using the available aggregate data reveals that increased production of foreign invested enterprises (FIEs) has a significantly positive effect on the production of domestic firms during 1984-86. Through technology transfer, FIEs helped the semiconductor industry to develop into a world-wide dominance in memory chips. They also contributed to the pharmaceutical industry in inventing new drugs by raising research capabilities. Besides technology transfer, opening-up of the domestic market to FDI is changing Korea's industrial structure. The FDI liberalization in the retail industry has replaced the manufacturer-dominated structure with the retailer-dominated ones.

I. Introduction
II. Foreign Direct Investment Policy in Korea
1. Historical Overview of Foreign Direct Investment Policy
2. Current Foreign Direct Investment Regime
3. Future Directions

III. Impact of Foreign Direct Investment Liberalization in Korea
1. Trends and Patterns of FDI in Korea
2. Externalities on Production of Domestic Firms
3. Industrial Case Studies

IV. Concluding Remarks

References

Appendix