Foreign Direct Investment and Exports of Manufacturing; The Case of South Korean`s Electronics

Abstract

The economic growth of south Korea since 1962 has been remarkable. Despite a low natural resource base, by relying on its abundant supply of skilled and well trained labor, and foreign capital and technology, this country provides an example of a successful experience in industrialization. Given the limitations of the Korean economy in availability of physical capital and technology, the Foreign Direct Investment (FDI) had a major impact on the industrialization and development of South Korea. Between 1960-75, a huge amount of foreign investment was allowed to flow into this country. Prior to that period (during the 1950s), Korea received a significant amount of foreign assistance which was essential to the improvement of her infrastructure. As described later in this paper, most of FDI in Korea was a response to the country's Export Promotion (EP) policies and to its export performance. United states' and Japan's Multinational Corporation (MNCs) are the largest investors in South Korea. Other large investors are Netherlands, Hong Kong, West Germany, United Kingdom and Panama (Table 1). Due to the vast amount of these FDIs in different sectors of Korean economy (particularly in manufacturing sectors), the contribution of MNCs in the production and export of those sectors is of great importance. This is especially the case for the dynamic industries such as electronics. This paper examines the determinant factors of U.S. MNCs FDI and exports and the dynamic interdependence between the two variables in case of South Korea' s electronics industry. This industry is chosen because of (a) the existance of a substantial