By Jeffrey I. Kim
On Sept. 3, North Korea detonated its sixth and most powerful nuclear bomb on Sunday and it astonished the whole world. The U. S. has warned that time was running out to counteract. On Sept. 8, the United Nations Security Council (UNSC) member countries unanimously voted for increased sanctions on North Korea. This means that the representatives from China, Russia, and the U.S. had agreed on the specific items of punishment against North Korea. The markets interpreted this resolution as a signal that the probability of war has dropped significantly. Consequently the stock market and currency market have recovered.
On Sept. 15, North Korea fired an IRBM nuclear missile over Hokkaido, Japan's territory, to a place in the Pacific Ocean. Surprisingly, however, the markets reacted in the opposite direction. Stock prices went up by 0.35% and the Korean currency became stronger against the U.S. dollar by 0.35%. The market participants have learned a lesson of how to respond.
In retrospect, the three players, China, Russia, and the U.S. have conducted repeated games with their common objective of preventing a nuclear war on the Korean peninsula. Every time North Korea has tested a nuclear weapon, each player ingeniously plays out in such a way that they come up with the optimum solution. Namely preventing a war but punishing North Korea appropriately while leaving some options to use in the next round of game.
While these three power countries are playing the war games, North Korea is making an enormous loss in economic and diplomatic terms. Some countries in South America have ordered the North Korean diplomats to leave their country. If North Korea continues testing nuclear weapons, more countries will cut off their diplomatic relations. Not to mention the UNSC's further sanctions.
The world is watching the situation on the Korean peninsula with much concern. Surprisingly, however, this is not true for foreign investors in South Korea because they have a strong confidence in the working of the nation's free markets.
They do not worry much about a war. Rather they worry about the unreasonable business regulations. They acknowledge the efforts of the government of South Korea to host the foreign firms and to eliminate regulations unnecessarily governing their business. Also they greatly rely on the role of the Foreign Investment Ombudsman in resolving their grievances.
Politicians and the government enact new laws mainly for protection of the natural environment and of the safety of workers and consumers. In the beginning, these regulations are well justified. Later on, however, the underlying conditions change in such a way that they need to be dropped. Otherwise the outdated laws and enforcement decrees only impair their business activities.
To fight the reckless creation of new laws restricting the business of foreign companies, the government has established the online regulatory information service system. Foreign investors can access the online portal site and submit their opinions against the new laws proposed by the National Assembly and the government. As a consequence, bad regulations proposed tend to be dropped. Still, however, they feel stressed about the existence of numerous outdated and unnecessary regulations at the level of the local government's enforcement decrees and ordinances.
South Korea has enjoyed benefits from foreign direct investment (FDI). For the past three decades, attraction of foreign firms with advanced technology has greatly enhanced the nation's industrialization and tremendously expanded its volume of trade. Along with this trend, Korea is often cited as an exemplary country providing the most efficient and effective after-care services for foreign firms. Nevertheless, a good number of foreign companies suffer from unreasonable regulations.
These days many ordinary people may consider North Korea's intensified provocations against South Korea and the entire world may have an enormously detrimental impact on the inflow of foreign firms. The North Korea factor has been adversely affecting South Korea's economy for more than four decades in the past and it has been treated as a fixed parameter in the determination of FDI inflows. So the markets in South Korea will rationally function in the future even if North Korea continues nuclear provocations. Consequently the nation will continually receive FDIs flowing from abroad as it keeps eliminating outdated laws.
Dr. Jeffrey I. Kim (ickim@skku.ac.kr) 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.
 |
On Sept. 15, North Korea fired an IRBM nuclear missile over Hokkaido, Japan's territory, to a place in the Pacific Ocean. Surprisingly, however, the markets reacted in the opposite direction. Stock prices went up by 0.35% and the Korean currency became stronger against the U.S. dollar by 0.35%. The market participants have learned a lesson of how to respond.
In retrospect, the three players, China, Russia, and the U.S. have conducted repeated games with their common objective of preventing a nuclear war on the Korean peninsula. Every time North Korea has tested a nuclear weapon, each player ingeniously plays out in such a way that they come up with the optimum solution. Namely preventing a war but punishing North Korea appropriately while leaving some options to use in the next round of game.
While these three power countries are playing the war games, North Korea is making an enormous loss in economic and diplomatic terms. Some countries in South America have ordered the North Korean diplomats to leave their country. If North Korea continues testing nuclear weapons, more countries will cut off their diplomatic relations. Not to mention the UNSC's further sanctions.
The world is watching the situation on the Korean peninsula with much concern. Surprisingly, however, this is not true for foreign investors in South Korea because they have a strong confidence in the working of the nation's free markets.
They do not worry much about a war. Rather they worry about the unreasonable business regulations. They acknowledge the efforts of the government of South Korea to host the foreign firms and to eliminate regulations unnecessarily governing their business. Also they greatly rely on the role of the Foreign Investment Ombudsman in resolving their grievances.
Politicians and the government enact new laws mainly for protection of the natural environment and of the safety of workers and consumers. In the beginning, these regulations are well justified. Later on, however, the underlying conditions change in such a way that they need to be dropped. Otherwise the outdated laws and enforcement decrees only impair their business activities.
To fight the reckless creation of new laws restricting the business of foreign companies, the government has established the online regulatory information service system. Foreign investors can access the online portal site and submit their opinions against the new laws proposed by the National Assembly and the government. As a consequence, bad regulations proposed tend to be dropped. Still, however, they feel stressed about the existence of numerous outdated and unnecessary regulations at the level of the local government's enforcement decrees and ordinances.
South Korea has enjoyed benefits from foreign direct investment (FDI). For the past three decades, attraction of foreign firms with advanced technology has greatly enhanced the nation's industrialization and tremendously expanded its volume of trade. Along with this trend, Korea is often cited as an exemplary country providing the most efficient and effective after-care services for foreign firms. Nevertheless, a good number of foreign companies suffer from unreasonable regulations.
These days many ordinary people may consider North Korea's intensified provocations against South Korea and the entire world may have an enormously detrimental impact on the inflow of foreign firms. The North Korea factor has been adversely affecting South Korea's economy for more than four decades in the past and it has been treated as a fixed parameter in the determination of FDI inflows. So the markets in South Korea will rationally function in the future even if North Korea continues nuclear provocations. Consequently the nation will continually receive FDIs flowing from abroad as it keeps eliminating outdated laws.
Dr. Jeffrey I. Kim (ickim@skku.ac.kr) 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.
