The Impact of Free Trade Agreements on Foreign Direct Investment: The Case of Korea

Chankwon Bae () and Yong Joon Jang ()
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Chankwon Bae: Korea Institute for International Economic Policy
Yong Joon Jang: Kyung Hee University

East Asian Economic Review, 2013, vol. 17, issue 4, 417-444

Abstract: This paper aims to empirically identify the effects of FTAs on outward and inward FDIs in Korea. Considering the income differences between Korea and its FTA partners, we hypothesize that FTAs have a positive effect on outward FDI to developing countries and inward FDI from developed countries. An underlying source of the hypothesis is the Knowledge-Capital model, addressing the positive (negative) relationship between trade costs and horizontal (vertical) FDI. We test for the hypothesis using data on Korea's FTAs and FDI over the period 2000-2010. We find that our empirical results support the hypothesis, and additionally, FTAs in general encourage FDI by creating an FDI-friendly environment.

Keywords: FTA; Horizontal FDI; Vertical FDI; Knowledge-Capital Model (search for similar items in EconPapers)
JEL-codes: F15 F21 F23 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:eaerev:0052

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