Korean Investment in South East Asia
Course code: ECON3009
Course Name: South East Asia Economic policy and Development
Name: Satoshi Fukushima
Student Number: u5497161
Table of contents
2. Definition and Categorization of Foreign direct investment
3. Analysis of Korean entire investment decision
4. Analysis of FDI of each ASEAN nation
5. Econometric analysis of Korean FDI determinants
Recently Korean enterprises such as Samsung, LG rapidly increased the market share of labour-intensive products such as consumer electronics in the global market. The labour-intensive products are not always produced only in South Korea. Korean enterprises allocate the production and assemble process in the optimal locations such as Southeast Asia nations and China with their lower labour cost. In order for Korean enterprises to produce their products in the optimal place, they have invested huge amount of money in those region and countries.
However, Korean investment amount
differs from country to country because condition in each host country is different. In this report I would like to figure out determinants of Korean Foreign direct investment in Southeast Asia. Additionally I will find out the economic effect of Korean FDI which improves the standard of living in Southeast Asia nations. 2. Definition and categorization of foreign direct investment (FDI)
Firstly, I would like to explain the concept of Foreign direct investment. In 20th century the rapid advance of transportation technology allowed for cross border production of commodities in pursuit of cost minimization in global perspective. As a result, capital abundant enterprises and countries invest their money into counties with low labour cost or with abundant resource. They have not only invested their money but also transfered their technology to construct factories and to manage their business by themselves in their target countries. The direct investment into production or business in a country by an individual or company of another country, either by buying a company in the target country or by expanding operations of an existing business in that country is called Foreign direct investment (FDI).
Foreign direct investment bring about the economic development in targeted countries because the FDI produces job opportunities for people in the host counties and improve the standard of living in the countries, which cannot be done just by portfolio investment.
Determinants of FDI are mainly classified as internal factors and external factors. There are the exchange rate, domestic wage and market size of a country considered as internal factor. The former two factors strongly correlate international competitiveness in term of manufacturing products.
to minimize their production cost, firms find places with lower labour cost and good the exchange rate with their export partner countries. Additionally when a domestic market size is significantly small or saturated, firms have to explore foreign markets for more profits.
Next, firms consider the location, labour cost, taxation system, infrastructure, Education level and political stability in host countries as external factors. Host countries have to be close to their donor countries or exporting partner countries. In addition in case of producing labour-intensive goods, labour cost minimization is crucial to determine the price of final product. Moreover, the taxation system in host countries crucially affects firms’ tax-deducted profits. When it comes to sell products, there must be a certain number of class which affords to buy a product. Infrastructure level such as Internet availability and maintained ports and roads is crucial to determine production cost. Education level such as literacy rate is also crucial factor to determine educational cost for workers to produce