The Impact of Foreign Direct Investment and Trade Liberalization on Economic Growth, Income Distribution and Environmental Quality: The Comparative Analysis between France and South Korea

Abstract

The main objective of this paper is to analyze the impacts of foreign direct investment (FDI) and trade openness (TO) on three main pillars of sustainable development (SD) consists of growth, income distribution, and environmental quality, for two selected countries which are South Korea and France. The observation of this study is based on annual data covering the period from 1980 to 2014. All the three proposed model are analyzed by using Autoregressive Distributed Lag (ARDL) estimation technique.The long run elasticities of ARDL model indicated that FDI inflows have led to higher growth and lower pollution level for South Korea, but have widened the income inequality in this country. The TO, on the other hand, has improved the income distribution but failed to have any significant effect on growth and environmental quality. As for France, FDI inflows were found to reduce income equality but have no significant impact on growth and environmental quality. As for TO, it was found to have a positive influence on growth. South Korea could offer more attractive incentives to foreign investors to invest more in both agricultural and manufacturing sectors besides improving the trade policies in order to sustain economic growth. France on the other hand, should be more selective especially allowing foreign industries that use cleaner energy in their production. Besides, France could adopt stricter environmental strategies in their trade agreements with other countries in order to ensure better protection for the environment.