According to a formal model for choice of locations for Korea's FDI stock, market size and growth in real GDP significantly cause a positive effect on location of FDI, while the real GDP per capita and distance variables turn out to cause negative effects on FDI. In particular, the negative effect of real capita GDP on FDI implies that Korean overseas production has little relation to high-income consumers and products. We can find changes in patterns of choice of location after the Asian financial crisis; in the early 1990s, the motivation behind FDI was to seek low cost labor in declining industries, but by the late 1990s, the main factor driving FDI was the globalization of businesses in the large conglomerate sector. In addition, the insignificance of human capital abundance, technology level and tax rates means that institutional and policy-related variables such as transparency and pro-FDI policy might be more important than those variables. (The rest is omitted.)

Executive Summary

I. Introduction

II. Literature Review

III. Determinants of FDI Outflows

IV. FDI's Effect on Trade: Empirical Test

V. Summary and Concluding Remarks

Appendix. FDI Outflows in 1991-1994 and 1997-1999

References