An Empirical Study On The Effects Of The Bilateral Investment Treaty On Korea's Outward Foreign Direct Investment

In the process of the rise of Korea,O utward Foreign Direct Investment(OFDI)has been playing an important role in Korea's economic development.Korea's OFDI began in the late 1980 s.In 1985,the actual value of Korea's OFDI was only 112 million US dollars.In more than three decades,it saw a large-scale growth,and in 2016 it reached 34.99 billion US dollars,increasing by about 311 times.In order to promote the steady development of OFDI,the Korean government signed a number of Bilateral Investment Agreements(BITs)with the host countries and Free Trade Agreements(FTAs)with investment terms to reduce the institutional risk of the host countries.BIT is an agreement with legal effect signed between two governments in order to encourage,protect and promote investment between the two countries.Although the contents between different BITs signed by Korea and the host countries are different,they generally include explicit provisions about the protection and promotion of investment,investment access conditions,investment treatment,loss compensation,remittance of investment income and dispute settlement and other rights and responsibilities.Up to now,South Korea has signed a total of 90 BITs.Based on the OFDI data of Korea investing in 81 host countries from 1980 to 2014,this paper mainly explores the following two issues.First,whether BITs and the FTAs with investment provisions signed between Korea and other host countries which have already taken effect have positive effect on OFDI from Korea to the host countries.Second,What role does the institutional environments of the host countries play in attracting Korea's OFDI? When the host countries' institutional environment are poor,whether the BITs signed by Korea and the host countries have substitutional effects.The structure of this paper is as follows.The first part is the introduction to the background of the research,the literature review and the content framework of the paper,and summarizes the previous researches on the promotion effect of BIT,FTA and host countries' institutional environments on OFDI.The second part introduces the development process,current situation and industrial restructuring of Korea OFDI,and the development process of the Korea's investment agreement.The third part is the empirical research,including model setting,variable selection and data explanation,fixed effect model empirical analysis,and then robustness test using instrumental variable method;the fourth part summarizes the whole paper and gives policy recommendations.Empirical study show that the effective BIT does promote Korea's OFDI,FTA with investment terms also plays the same role as the BIT.Whether the Korea investor can establish continuous manufacturing and operate steadily in the host countries depends on the institutional environment of the host countr ies,and the higher the institutional level of the host country,the more attractive of the host country to foreign investors.When the institutional environments of the host countries are poor,BIT plays an substitutional role on the poor institutional level of the host countries.The experience of Korea OFDI provides reference for our country's policy decision.At present,China's OFDI is in the period of rapid development.In 2015,OFDI has surpassed Inward foreign direct investment(IFDI),and China has become a country of net investment outflow.Since the Belt and Road Initiative has become C hina's main objective and major initiative of China's 13 th Five Year Plan,countries along the Belt and Road become important destinations for C hina's OFDI.Based on Korea's experience,C hina should enhance the signing of trade and investment agreements with other countries,including “the Belt and Road” countries,and make rules on property rights,investment access,investment treatment,expropriation and nationalization,damages compensation and dispute settlement and other rights and responsibilities of investors,in order to protect China's overseas investment with legal and binding institutional system.