Anticipation or risk aversion?: The effects of the EU enlargement on Korean trade and FDI activities in Central and Eastern Europe

Abstract

This study attempted to identify how regional integration and spatial enlargement would affect firms’ strategic decisions from the outside of an integrated region. By analyzing data sets between 2000 and 2007 utilizing the gravity model, this study examined the specific properties of Korean trade and FDI flows to the participating 5 CEECs and 5 western European states before and after the enlargement of the EU. The initial findings show that the number of new investments increased significantly after the enlargement while the monetary amount of total investment appeared to be negligibly affected. Further examinations by firm size revealed that SMEs were responsible for increased Korea FDI after the enlargement while large companies did not make any contributions. Having different attitudes toward risk aversion and anticipating opportunities for exploitation were suggested as a possible explanation.