Impact of Fdi and Economic Growth
Foreign Direct Investment and Economic Growth in South Korea and Policy Lessons for Nepal
(A Master Degree Dissertation)
Submitted by: Raj Kumar Rai
MSc. International Finance
Student Ref No: M00235713
Submitted to:
Middlesex University Business School, London
2008/09
September 25, 2009
London, United Kingdom
I
Abstract
Foreign direct investment (FDI) is taken as one of the key factor of rapid economic growth and development. FDI, it is believed to stimulate domestic investment, human capital, and transfers technology. It is associated qualities which causes the faster economic development in the host countries. South Korea, for instance had one of the of the poorest economies during 1960s, but yet achieved double digit economic growth with substantial amount of FDI inflows and become one of the most advanced economies in the world less than in a half century and a member of OECD country. This paper evaluates the role of FDI in South Korea’s economic growth employing macro economic times series data from 1980-2005.The other variables such as foreign direct investment, human capital, export, employment and domestic investment. This study uses the endogenous growth model to explore the role of FDI in economic growth. The role of FDI in economic growth is not statistically significant; however, the interaction between FDI and human capita, export and domestic capital is positive. This study supports the findings of Kim and Hwang (2000) in the case of Korean economic study of FDI and economic growth.
Key word: Foreign Direct Investment, Economic growth, South Korea II
Acknowledgements
I am heartily thankful to my supervisor, Mr. Leslie Taylor, whose guidance and supervision from the beginning to the concluding level enabled me to develop an understanding of the project. I would like to express my gratitude to Dr. Michela Vecchi for her support my queries in this dissertation writing.
I would like to take this
(A Master Degree Dissertation)
Submitted by: Raj Kumar Rai
MSc. International Finance
Student Ref No: M00235713
Submitted to:
Middlesex University Business School, London
2008/09
September 25, 2009
London, United Kingdom
I
Abstract
Foreign direct investment (FDI) is taken as one of the key factor of rapid economic growth and development. FDI, it is believed to stimulate domestic investment, human capital, and transfers technology. It is associated qualities which causes the faster economic development in the host countries. South Korea, for instance had one of the of the poorest economies during 1960s, but yet achieved double digit economic growth with substantial amount of FDI inflows and become one of the most advanced economies in the world less than in a half century and a member of OECD country. This paper evaluates the role of FDI in South Korea’s economic growth employing macro economic times series data from 1980-2005.The other variables such as foreign direct investment, human capital, export, employment and domestic investment. This study uses the endogenous growth model to explore the role of FDI in economic growth. The role of FDI in economic growth is not statistically significant; however, the interaction between FDI and human capita, export and domestic capital is positive. This study supports the findings of Kim and Hwang (2000) in the case of Korean economic study of FDI and economic growth.
Key word: Foreign Direct Investment, Economic growth, South Korea II
Acknowledgements
I am heartily thankful to my supervisor, Mr. Leslie Taylor, whose guidance and supervision from the beginning to the concluding level enabled me to develop an understanding of the project. I would like to express my gratitude to Dr. Michela Vecchi for her support my queries in this dissertation writing.
I would like to take this
References: Aliber, R.Z (1969), The International Corporation, edited by Charles P. KindleBerger, The MIT Press, Massachusetts, US. Aghoin, P. and Howitt, P. (1998), Endogenous Growth Theory, Massachusetts Institute of Technology Press, United States. Balasubramanyam, V.N. M.A. Salisu, and D. Sapsford (1996) Foreign Direct Investment and Growth in EP and Countries, Economic Journal 106(92-105). Barrell, R., and Pain, N (1996) An econometric analysis of U.S. Foreign Direct Investment, Review of Economics and Statistics, 78(200-207). Bertrand, O., Mucchielli, J.L and Zutauna, H (2004), Location Choice of Multinational Firms: The Case of Mergers and Acquisitions, HWWA Discussion paper 274, Hamburg Institute of International Economics, Hamburg. Bishop, B.(1997) “ Foreign Direct Investment in South Korea: Role of the State”, Ashgate Publishing Ltd, Aldershot, UK. Borensztein, Gragorio and Lee (1995) how does foreign direct investment affect economic growth? , National Bureau of Economic Research Working paper 5057. Caves, R.E. (1982), Multinational Enterprises and Economic Analysis, Cambridge University Press, Cambridge. Chakraborty, C. and Basu, P. (2002), “Foreign Direct Investment and Growth in India : a co integration approach”, Applied Economics, 34, 1061-1073. Chin, M. (2004) Asian Management systems, second edition, Thomson House, London. Choong, Y. A. (2008) New Direction of Korea’s Foreign Direct Investment Policy in the Multi-Track FTA ERA : Inducement and Aftercare Services, OECD Global Forum on International Investment, OECD Investment Division. Chung, Wilbur, Timothy Mitchell, and Bernard Yeung (2003), "Foreign Direct Investment and Host Country Productivity: the American Automotive Component Industry in the 1980s", Journal of International Business Studies, 34(2): 199-218. Chung, Y.I.(2007) South Korea in the Fast Lane; Economic Development and Capital Formation, Oxford University Press. Deme, M. and Graddy, D. (2006) Trade, foreign direct investment, and endogenous growth: and empirical investigation, Indian journal of economics and Business, Dec. De Mello, L.R (1997) Foreign Direct Investment in Developing Countries and Growth: A Selective Survey. Journal of Development Studies 34 (115-35). Elitza Mileva(2008) The impact of Capital flows on Domestic Investment in Transition Economies, European Central Bank, Working paper series no 871/February 2008. Emilio, J. (2001) Is Export-Led Growth Hypothesis Valid for Developing Countries? A Case Study of Costa Rica, United Nations, New York. Feder, Ram, Salvator and Hatcher (1983) On Exports and Economic Growth, Journal of Development Economics 12(1983): 59-73. Foreign Investment and Technology Transfer Act, 1992, Nepal. Gujrati, D. (2004), Basic Econometrics, Magraw-Hill Inc., Forth Edition, New York Rana, M Jigme, S. (2006) Determinants Affecting Foreign Direct Investment in Bhutan: Perception of Government Officers in “ BIMST-EC” Member countries, Masters Thesis, University of the Thai Chamber of Commerce. Karbasi, A., Mohamadi, E. and Ghofrani, S (2005), Impact of Foreign Direct Investment and Trade on Economic Growth, Economic Research Forum, paper No 122005033. Kim, D.D. and Seo, J.S.(2003) Does FDI inflow crowd out domestic investment in Korea, Journal of Economic Studies, Vol. 30, (6), p, 605-622. Kim, D.D. and Seo, J.S.(2003) Does FDI inflow crowd out domestic investment in Korea? Journal of Economic Studies, Vol.30 No 6. Kim, K (2006) The 1997-1998 Korean Financial Crisis: Causes, Policy Responses and Lessons, IMF paper presented in High Level of Seminar on Crisis Prevention in Emerging Markets, July 10-11, 2006, Singapore. Lall,S.(1996),Translational Corporations and world Development, International Thomson Business Press, London. Makki, S. and Somwaru, A.(2004) Impact of foreign direct investment and trade on economic growth, American Journal of Agriculture Economics, 86(3), 795-801. Nicholas, R. (1991) Foreign Trade and Economic Reform in China 1978-1990, Cambridge University Press Nonnengerg, M.J Pearce, R. (2005), Understanding the Global Firm, course notes pg3; Caves (1999), pg25 Piggott, J Pokhrel, K. (2008), Foreign Investment in Nepal, The Telegraph Nepal. (Available at http://www.telegraphnepal.com/news_det.php?news_id=5150) Ramamurti, R Romer, P. M. (1990) Endogenous Technological Change, Journal of Political Economy, Vol. 98, No 5. Rodriguez, F. and Rodrik, D. (1999) Trade Policy and Economic Growth: A Skeptic’s Guide to the Cross-Country Evidence, Working paper, National Bureau of Economic Research, Cambridge, M A. Savada, A.M. and Shaw, W. ed. (1990) South Korea: A Country Study. Washington: GPO for the Library of Congress Saveda, A.M Stephen, H, Lim, W. and Kim, E, eds (2003) Economic crisis and corporate Restructuring in Korea, Cambridge University Press. Thuborn, E. and Weiss, L. (2006) Investing in Openness: The Evolution of FDI Strategy in South Korea and Taiwan, New Political Economy, vol. 11, No 1. UNCTAD(2003), Investment Policy Review; Nepal, UNCTAD/ITIE/IPC/2003/1 Young, A (1994) The tyranny of numbers: Confronting the statistical Realities of the East Asian Growth Experience, Quarterly Journal of Economics, Vol.110 (August 1995), pp.641-680 W. J., Lee,(2008), Economic Growth and Human Development in The Republic of Korea, 1945-1992, Human Development Reports, UNDP, Occasional per, FEB, 2008 Wei, K National Strategies for Sustainable Development (2004), Macro-Economic Policies, Performances and Sustainability, article available at www.nssd.net/country/nepal www.unctad.org www.kotra.or.kr