Research On Korean Trade Effects Of Outward FDI

World economic powerful nations are often great powers of outward foreigndirect investment. Foreign direct investment has become a essential path for thenational economic growth. With the economic globalization nowadays, the foreigndirect investment further develops the optimizing allocations of world resources,expands the production and the market, and promotes technology transfer anddiffusion, etc. The economic phenomenon of synchronous growth of foreign directinvestment and trade has attracted the attention of many scholars. Peter Drucker said,in the past, trade was in advance of investment, but now trade depends on investmentmore and more. The foreign direct investment’s influence on a country’s trade is alsovery obvious, for example, it can help the investing countries to get around tradebarriers, reduce the trade friction and the export of sensitive commodities, etc. In themeantime, foreign direct investment can optimize trade structure of home country,improve the proportion of knowledge and technology intensive industry, and improvethe terms of trade, etc. Therefore, it’s important to theoretically analyze andempirically test from the perspective of foreign direct investment in home countrysystematically.During fifty years, South Korea has become the world’s twelfth largest economyfrom a poor agricultural country. Foreign direct investment plays an important role inSouth Korea’s economic growth that cannot be ignored. As one important emergingindustrialized country in East Asia, South Korea continues to expand its scale of tradeand investment, which promotes the national economy. Regarding South Korea as arepresentative of successful emerging industrialized countries, intensively study thedevelopment history of South Korea’s foreign direct investment and the characteristics,and its influence on volume of domestic trade, trade structure and trade benefit distribution, etc, and search the counter measures of South Korea’s foreign directinvestment.It’s important to study the economic effects of South Korea’s foreign directinvestment. First of all, in recent years, the rapid economical growth of South Korearelies heavily on economic effect which is caused by foreign direct investment. On thestage of international direct investment, South Korea plays a role of investing homecountry, rather than the role of the host country. Secondly, the scale and speed of SouthKorea’s foreign direct investment continue to rise, but the growth of foreign directinvestment has not brought the South Korea continuous increasing of trade interests.Finally, the final goal of South Korea’s pursuing economic growth is not trade, but theinfluence which the effect of foreign direct investment impacts on the nationaleconomic development has been profound.In recent years, foreign direct investment mainly applies empirical research,these empirical evidence are mainly chosen from the developed countries, such asBritain, Japan, Germany, as the research object, and few scholars choose emergingeconomies as the research object; A lot of researches are chosen from the hostcountries as the research object, analyzing on the economic effects of foreign directinvestment, but less research on the home country; in terms of trade effect of foreigndirect investment, most of research results are concentrated in the trade volume, ratherthan concrete analysis of trade structure, etc.This article follows the standard paradigm of economy research, on the basis ofrelevant theoretical research, creates theoretical model and empirically analyzesthrough measuring tools. The writer will have a research on trade effect of SouthKorea’s foreign direct investment in the three aspects of the effect of trade volume,trade structure and terms of trade.In the aspect of the effect of trade volume caused by South Korea’s foreign directinvestment, the writer has made a systematic empirical analysis on the basis oftheoretical research. Theoretical research shows, trade policy, the scale of the market,exchange rate, investment motivation, industry characteristics and factor prices are the factors to study foreign direct investment of creates effect and trade substitutes effect,In empirical research, the writer use classical gravity model of trade and panel data toanalyze South Korea’s direct investment effects on trade import and export separately,and to explore the cause of how South Korea’s foreign direct investment promotestrade growth. Research results show that: no matter for South Korea’s import or export,foreign direct investment creates trade effect; the stock of foreign direct investmenteffects South Korea’s trade greater than the outflow of foreign direct investment effects,that is to say the long-term trade effect of foreign direct investment will be greater thanthe short-term trade effect; for South Korea’s trade effect, there exists export causeseffect, export substitutes effect, the reverse import and import cause effect. SouthKorea has greater effect caused by export in the aspect of export, and also has greatereffect caused by reverse import in the aspect of import.In the aspect of the effect of trade structure caused by South Korea’s foreigndirect investment, the writer has made a systematic empirical analysis on the basis oftheoretical research. Theoretical research shows that the mechanism how foreign directinvestment effects the trade structure transformation is through technical gap, percapita income, consumer demand structure and the difference of factor endowment,and other factors to change and to promote home country’s relative factor productivityand factor endowment, generate economies of scale, forming advantage of relativeleading technology to drive the transformation and upgrading of the economic structureand trade structure.In the empirical research, on the basis of the analysis of changes of South Korea’strade structure and investment structure, use the methods of co-integration theory, ADFtest, Johansen test and other modern mathematical analysis, take South Korea’sinvestment amount in previous years, trade volume of each industry, GDP andexchange rate as research objects, using the data of website database of the KoreaInternational Trade Association, the world bank and United Nations Conference onTrade and Development to analyze, and then conclude the South Korea’s foreign directinvestment effect on trade structure: after analyzing on the characteristics of industrial structure of South Korea’s foreign direct investment and the change of import andexport trade structure, it’s found that the outflow structure of South Korea’s foreigndirect investment and South Korea’s import and export industrial distribution have“overlap” characteristic; the influences of South Korea’s direct investment onpromoting the import and export of industrial products is larger than promoting theimport and export of agricultural products and other primary products, the promotingeffect of South Korea’s foreign direct investment on national import and export trade ismainly through exporting industrial products; industrial products such as machines,transport equipments, and steel are the biggest industry which the Multi-NationalCorporations’ direct investments create.In the aspect of terms of trade of South Korea’s foreign direct investment, firstlytheoretically analyze on the effect of foreign direct investment on price terms of trade.Secondly investigate changing trend between the South Korea’s foreign directinvestment and price terms of trade, income terms of trade and factor terms of trade,explore the relationship and connection between the two parts. Finally, according toKorea’s trade interests distribution, it obtained: under the effect of foreign directinvestment, although South Korea’s terms of price trade is slightly worse, but theexport volume index rises dramatically, which improves South Korea’s income termsof trade; foreign direct investment promotes South Korea’s labor productivity forexporting goods, thereby improving the Korea’s index of single factor terms of trade; itobtained that due to the changing of import and export commodity price index andexport volume index, South Korea’s static trade benefit was not efficient.Based on the above analysis, the paper puts forward the following Suggestions onthe south Korea’s foreign direct investment policy: in strengthening the integrationaspect of investment policy and trade policy, it is necessary to set up the managementinstitutions of comprehensive coordination of overseas enterprises, the mainresponsibility of the management institutions is to make investment policy, arrangeinvestment priorities, optimize investment industry distribution and regional structure,establish the policy of foreign exchange regulations for use and talent and technology flow, etc; the south Korea government should further improve the investmentinsurance laws and regulations relating to financial support policy, make the enterpriseinsurance legal system and the financial support policy to the laws; increasing oftransnational management talents is the basic means to improve South Korea’s laborproductivity, that is the need to make the South Korea companies to adapt to foreigndirect investment, and carry out transnational operation; The south Korea governmentis necessary to guidance overseas investment and improve aspects such as informationtechnology and investment information consulting for multinational companies,especially small and medium-sized enterprises, set up investment advisory agencies,help multinational companies to make overseas investment analysis and makeinvestment planning, thus strengthen the guide and service for the investment ofmultinational companies, etc.