UNCTAD Insights: Fourth Industrial Revolution and FDI from SMEs: The Case of the Republic of Korea

Abstract

The impact of Fourth Industrial Revolution (4IR) technologies on enterprises’ internationalization strategies is ambiguous. Although digital technologies lower information and transaction costs and facilitate international coordination of overseas activities, automation technologies can push enterprises to reshore foreign operations. This paper analyses the impact of 4IR technologies on the foreign investment decisions of small and large enterprises in one of the most technologically advanced countries in the world: the Republic of Korea. The results indicate differential impact across enterprise sizes and technologies. The propensity of SMEs to invest overseas upon the adoption of 4IR technologies, especially digital technologies, increases relatively more than that of larger firms. The results have important implications for investment and development policies in the region. The findings highlight the key role of FDI by Korean SMEs in the technological development of neighbouring Asian economies, calling for increased attention to smaller players in investment promotion.