Overseas direct investment and exports in Korea: A time series approach

Abstract

Overseas direct investment is one of the most important and influencing variables in globalizing economy. And it continues to be a driving force of the globalization process that characterizes the modern world economy. Among others, export related effects are prominent. In this study, the relationship between overseas direct investment and exports is investigated using quarterly data and time series approach. Firstly, the stationarity of variables is examined using unit root test. And the adequacy of using VAR model is tested with co-integration test. Next, the relationship between overseas direct investment and exports is analyzed using Granger causality method. The reliability of Granger causality tests depends on the correct specification of the information universe because the omission of relevant in a third variable exists, which cause both overseas direct investment and export, the causality tests may be spurious, reflecting the influence of the omitted variable. To avoid this problem, exchange rate is included as an exogenous variable. Finally, impulse response analysis is performed to assess the quantitative impact of overseas direct investment on exports and vice versa.