Determinants of Korean Outward Foreign Direct Investment: How Do Korean Firms Respond to the Labor Costs of Host Countries?

34 Pages Posted: 1 Oct 2020

See all articles by Hanbyul Ryu

Hanbyul Ryu

Korea Institute for International Economic Policy

Young SIk Jeong

Korea Institute for International Economic Policy

Date Written: September 1, 2020

Abstract

Low cost of labor has been one of the major incentives that foreign firms invest in many developing countries. Yet, many developing countries including China and ASEAN have recently experienced a rapid increase in labor costs. Using the wage information provided by JETRO, this study examines how Korean FDI outflow is affected by the increase in labor costs of the manufacturing industry in host countries. The results indicate that the worker’s and engineer’s wages in Asian developing countries, who accumulated at least 3 and 5 years of work experience, have generally a negative impact on Korean FDI outflow. However, there exist positive relationships between the wages and FDI when the wages stay at very low levels. We do not find evidence that labor costs make a significant impact on Korean FDI outflow to European or Developed countries.

Keywords: Foreign direct investment Labor costs, Korea

JEL Classification: F21, F23, O14

Suggested Citation

Ryu, Hanbyul and Jeong, Young SIk, Determinants of Korean Outward Foreign Direct Investment: How Do Korean Firms Respond to the Labor Costs of Host Countries? (September 1, 2020). KIEP No. Working Paper 20-05, Available at SSRN: https://ssrn.com/abstract=3700761 or http://dx.doi.org/10.2139/ssrn.3700761

Hanbyul Ryu (Contact Author)

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Young SIk Jeong

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

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