Authors : Bong Geul Chun(Department of Economics, University of Seoul), Hyounjin Yi(the Bank of Korea)

Abstract

 We examine whether outward FDI has negative effects on domestic investment in Korea. This analysis is based on firm-level panel data for the period 2007-2011 and the stock companies subject to external audit. Several estimation methods are used for this research such as pooled OLS, random-effect panel analysis, instrument variables analysis, bivariate Tobit, and SUR analysis.
 This research shows that there is no enough evidence to support that outward FDI has complemented or substituted investment in Korea. Estimation results of pooled OLS and panel analysis show that outward FDI has a positive effect on domestic investment. However, we cannot find significant effects of outbound FDI on domestic investment when we use the log of amount of export and the ratio of labor costs to sales for instrument variables. In addition, we cannot find any evidence that manufacturing firms with outward FDI have replaced or complemented investment in Korea in the short run, using bivariate Tobit and SUR analysis.