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

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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.

Suggested Citation

  • Ryu, Hanbyul & Jeong, Young Sik, 2020. "Determinants of Korean Outward Foreign Direct Investment: How Do Korean Firms Respond to the Labor Costs of Host Countries?," Working Papers 20-5, Korea Institute for International Economic Policy.
    • Handle: RePEc:ris:kiepwp:2020_005
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    Keywords

    Foreign direct investment Labor costs; Korea;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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