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

Hanbyul Ryu and Young Sik Jeong ()
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Young Sik Jeong: Korea Institute for International Economic Policy, Postal: Building C, Sejong National Research Complex, 370, Sicheong-daero, Sejong-si,Korea, http://www.kiep.go.kr/index.do

No 20-5, Working Papers from Korea Institute for International Economic Policy

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 (search for similar items in EconPapers)
JEL-codes: F21 F23 O14 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2020-09-01
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Persistent link: https://EconPapers.repec.org/RePEc:ris:kiepwp:2020_005

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