By Dr. Jeffrey I. Kim
Until a few years ago I had taught international economics including a subject about international trade and foreign direct investment (FDI) at Sungkyunkwan University. I remember this subject was very popular among the students, particularly foreign students. By the university's policy, I have lectured this course in English because a good number of foreign students were taking courses at the University under international exchange programs.
In the beginning the students were excited about the class. Later on, however, they became serious when analyzing the results of FDI flows from advanced countries to developing countries. They had some critical questions in mind such as "Will the host country get the expected benefits?" They became relieved when they learned that such countries as Singapore, Hong Kong, Taiwan, and Korea became success stories. They have all benefited from FDI.
Nevertheless, concerns about FDI still exist in the emerging and developing countries. Some people, especially younger people in those countries tend to worry that in the real world developing countries would not be able to benefit from FDI because the advanced countries dominate in the entire international markets.
Again their concerns have little foundation. There are so many industries that no single country will be dominant in every industry. There are numerous industries where even developing countries have comparative advantage over developed countries. Moreover, with the acquired technology, the developing country can export higher-quality products to other developing countries.
The UNCTAD (United Nations Conference on Trade and Development) persistently recommends that the developing countries attract FDI from the advanced countries. This organization was established in 1964. Its primary objective is to formulate policies relating to all aspects of development, including trade, aid, transport, finance and technology.
It has produced numerous studies related to the support of the developing countries in many areas. They have pointed out that in addition to acquisition of high technology and export benefit, the host country can learn superior management skills, promote industrialization, and strengthen their global network through FDI.
The OECD (Organization for Economic Co-operation and Development) also endorses the merits of FDI. OECD was established in 1948 and its primary objective was to help the war-torn countries in Europe to promote trade and development. It is called the Club of Rich Countries. Korea joined the OECD in 1996.
The OECD acknowledges that in the multi-commodity world, there are many items that the developing countries can produce better than the developed countries. It also acknowledges that there are different income groups within the same nation. Then any nation can benefit from FDI by utilizing production advantage and consumer markets. On the production side, even a poor developing country can choose commodities in which it has a comparative advantage. On the consumption side, it can target the consumers in the relevant income group. All countries whether they are developing or developed, can take advantage of FDI.
Along these lines, Korea sent the Hyundai automobile company to the US to produce mid-size passenger cars. These cars are attractive to middle-income families in the US. Similarly France and the US have sent their automakers to Korea where they produce mid-size cars to attract Korean customers. Therefore, the direction of FDI is not always one way from the advanced to the developing country. The direction of FDI flows can change with time.
According to the OECD's recent publication, the amount of FDI flows into developing countries in Asia has been rising in recent years. In 2012 total amount of FDI was $410 billion and it has been increasing since then. The percentage increases in the following years are: 5.3% in 2013, 8.5% in 2014, and 15.6% in 2015.
A similar phenomenon has happened in the developed countries. Total amount of FDI inflows in the European Union in 2014 was about $250 billion and it increased by 93% in 2015 and 14% in 2016. In contrast, the total FDI flows into the OECD and G20 in 2014 were about $440 billion and it increased by 64% in 2015 and by 30% in 2016.
All nations desire FDI and competition for FDI will increase in the coming years. So the importance of FDI inflows for developing countries and for Korea must not be underrated for sustainable growth and increased employment.
Dr. Jeffrey I. Kim is a foreign investment ombudsman, a state-appointed troubleshooter for investors and entrepreneurs from overseas. He earned a Ph.D. in economics from the University of Chicago and taught at the University of Colorado, Boulder, and at Sungkyunkwan University.
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In the beginning the students were excited about the class. Later on, however, they became serious when analyzing the results of FDI flows from advanced countries to developing countries. They had some critical questions in mind such as "Will the host country get the expected benefits?" They became relieved when they learned that such countries as Singapore, Hong Kong, Taiwan, and Korea became success stories. They have all benefited from FDI.
Nevertheless, concerns about FDI still exist in the emerging and developing countries. Some people, especially younger people in those countries tend to worry that in the real world developing countries would not be able to benefit from FDI because the advanced countries dominate in the entire international markets.
Again their concerns have little foundation. There are so many industries that no single country will be dominant in every industry. There are numerous industries where even developing countries have comparative advantage over developed countries. Moreover, with the acquired technology, the developing country can export higher-quality products to other developing countries.
The UNCTAD (United Nations Conference on Trade and Development) persistently recommends that the developing countries attract FDI from the advanced countries. This organization was established in 1964. Its primary objective is to formulate policies relating to all aspects of development, including trade, aid, transport, finance and technology.
It has produced numerous studies related to the support of the developing countries in many areas. They have pointed out that in addition to acquisition of high technology and export benefit, the host country can learn superior management skills, promote industrialization, and strengthen their global network through FDI.
The OECD (Organization for Economic Co-operation and Development) also endorses the merits of FDI. OECD was established in 1948 and its primary objective was to help the war-torn countries in Europe to promote trade and development. It is called the Club of Rich Countries. Korea joined the OECD in 1996.
The OECD acknowledges that in the multi-commodity world, there are many items that the developing countries can produce better than the developed countries. It also acknowledges that there are different income groups within the same nation. Then any nation can benefit from FDI by utilizing production advantage and consumer markets. On the production side, even a poor developing country can choose commodities in which it has a comparative advantage. On the consumption side, it can target the consumers in the relevant income group. All countries whether they are developing or developed, can take advantage of FDI.
Along these lines, Korea sent the Hyundai automobile company to the US to produce mid-size passenger cars. These cars are attractive to middle-income families in the US. Similarly France and the US have sent their automakers to Korea where they produce mid-size cars to attract Korean customers. Therefore, the direction of FDI is not always one way from the advanced to the developing country. The direction of FDI flows can change with time.
According to the OECD's recent publication, the amount of FDI flows into developing countries in Asia has been rising in recent years. In 2012 total amount of FDI was $410 billion and it has been increasing since then. The percentage increases in the following years are: 5.3% in 2013, 8.5% in 2014, and 15.6% in 2015.
A similar phenomenon has happened in the developed countries. Total amount of FDI inflows in the European Union in 2014 was about $250 billion and it increased by 93% in 2015 and 14% in 2016. In contrast, the total FDI flows into the OECD and G20 in 2014 were about $440 billion and it increased by 64% in 2015 and by 30% in 2016.
All nations desire FDI and competition for FDI will increase in the coming years. So the importance of FDI inflows for developing countries and for Korea must not be underrated for sustainable growth and increased employment.
Dr. Jeffrey I. Kim is a foreign investment ombudsman, a state-appointed troubleshooter for investors and entrepreneurs from overseas. He earned a Ph.D. in economics from the University of Chicago and taught at the University of Colorado, Boulder, and at Sungkyunkwan University.
