The Impacrt of Regional Economic Integration on the Technology-Intensive Intermediate Goods Industry (in Korean)

This paper examines the impact of regional economic integration on the industrial relocation of participating countries with an emphasis on the role of foreign direct investment. Focusing on the integrating countries' asymmetries in technology and market size, this paper demonstrates that preferential trade agreements increase intra-bloc vertical FDI flows when the integrating countries show large differences in factor costs. Moreover, when the technology gap between the integrating countries is relatively large, inter-bloc horizontal FDI tends to inflow to countries with a higher technology level even though factor costs are higher. These results imply that Korea-China FTA might increase inter-bloc horizontal FDI inflows to Korea where Korea has significant technological advantage while intra-bloc vertical FDI inflows to China might expand with the Korean economy coming under heightened pressure to specialize in the headquarter service sectors.