The paper 'Foreign Direct Investment in South Korea" is a good example of a finance and accounting case study. Foreign direct investment (FDI) is of significant importance to the economic growth and global economic integration. Asia has been an integral part of this development given the constant inflows of FDI since the last decades. This paper discusses foreign direct investment (FDI) in Asia with a special focus on Southeast Asia and East Asia. It relates FDI flows to trade flows and altering the industrial structure. It further identifies the major determinants of FDI inflows to the region.
The impacts of FDI role on the economies of host Asian countries are also examined. More specifically, the impact of FDI on host countries is discussed with regard to productivity and its variation across industries and countries. Key Concepts: foreign direct investment, FDI, FDI impacts in Asia, FDI in Asia, Introduction Foreign direct investment (FDI) has been a major contributor to increased globalization over the last decades (Goldar & Ishigami 1999). FDI growth has been higher than the growth of international trade since multinational corporations have accounted for some 10 percent of the global output and around 30 percent of the global exports (Sjoholm & Lipsey 2010).
In addition, a substantial share of new technologies is developed and managed by these companies. Over the last decades, FDI has played a significant role in the development of Asian countries with Japan being one of the world’ s principal source and China the principal recipient of FDI. Asian countries such as Singapore have depended significantly on FDI. Additionally, Asia is viewed as the leading home to multinational’ s cross-country networks where diverse affiliates of corporations produce various components of a product or assemble such components to imported from oversees.
It is evident that complexities of operations across national borders impose large requirements on the economic development of the host countries (Goldar & Ishigami 1999). This paper, therefore, presents an argument that foreign direct investment is comparatively higher in the region since Asian countries are heterogeneous. Consequently, the countries vary in their capacity to attract and sustain FDI depending on factors such as institutional policies, trade regimes, infrastructure and labour force competences.
Indeed, this offers a leeway to explore the FDI in Asia and to evaluate the determinants of FDI and its impact on the productivity of various economies. This essay focuses on FDI inflow and its effects on productivity on East Asian and Southeast Asian economies, such as China, Hong Kong, South Korea, Indonesia, Singapore, Thailand, Taiwan and Malaysia. These groups are selected since it is a principal recipient of FDI in Asia. FDI Growth in Asia FDI inflows in Asia have significantly contributed to the rapid growth of most countries in the region.
As a significant aspect of global economic growth and integration, FDI accounts from some 30 percent of the global exports (UNCTAD 2007). Additionally, some 75 percent of total sales to foreign markets is done through FDI and 25 percent through exports (Antrá s & Yeaple 2013). In Asia, the source of FDI remains highly intense in high-income countries despite the trend showing that FDI from some countries is rapidly on the increase (Sjohol 2012). In Asia and other regions of the world, the FDI inflow destination has changed over the last two decades with a significant share destined to developing countries.
For instance, the share of FDI to developing nations has increased to nearly 47 percent from 29 percent between 1970 and 2011 (UNCTAD 2013).
Antrás, Pol, and Stephen R. Yeaple 2013, “Multinational Firms and the Structure of International Trade, NBER Working Paper Nr. 18775
Asian Development Bank Institute 2013, FDI in South Asia: Trends and Prospects, Viewed 29 July 2013, http://www.adbi.org/discussion-paper/2006/11/28/2066.fdi.south.asia.policy.trends/fdi.in.south.asia.trends.and.prospects/
Fung, K, Lizaka, H & Tong, S 2002, Foreign Direct Investment in China: Policy, Trend and Impact, Paper prepared for an international conference on China’s Economy in the 21st Centuryî to be held on June 24-25, 2002, Hong Kong. We would like to thank Alan Siu and Richard Wong for their encouragement.
Gaulier, G, Lemoine, F & Unal-Kesenci 2009, 'China’s Integration in East Asia: Production Sharing, FDI & High-Tech Trade,' CEPII, Viewed 29 July 2013, http://cepii.fr/PDF_PUB/wp/2005/wp2005-09.pdf
Goldar, B & Ishigami 1999, 'Foreign Direct Investmentt in Asia,' Economic and Political Weekly, Vol. 34, No. 22, pp. M50-M60
Krause, L.B., Koh Ai, T., and Yuan, L.T., (1987) The Singapore Economy Reconsidered, Institute of Southeast Asian Studies, Singapore
Markusen, J & Venebles, A 1998, 'Multinational ﬁrms and the new trade theory,' Journal of International Economics, Vol. 46,pp.183–203
Sjoholm, F 2013, Foreign Direct Investments in Southeast Asia, viewed 30 July 2013, http://www.aae.wisc.edu/hoseae/d16.pdf
Sjoholm, F & Lipsey, R 2010, FDI and Growth in East Asia: Lessons for Indonesia, IFN working Paper, Viewed 30 July 2013, http://www.ifn.se/wfiles/wp/wp852.pdf
Thiam, H 2006, Foreign Direct Investment and Productivity: Evidence from the East Asian Economies, UNIDO, viewed 29 July 2013, http://www.unido.org/fileadmin/user_media/Publications/Research_and_statistics/Branch_publications/Research_and_Policy/Files/Working_Papers/2006/WP032006%20Foreign%20Direct%20Investment%20and%20Productivity%20-%20Evidence%20from%20the%20East%20Asian%20Economies.pdf
UNCTAD 2007, World Investment Report, United Nations: New York and Geneva.
UNCTAD 2012, World Investment Report 2012, Viewed 29 July 2013, http://unctad.org/en/PublicationsLibrary/wir2012_embargoed_en.pdf
UNCTAD 2013a, World Investment Report 2013, Viewed 29 July 2013, http://unctad.org/en/PublicationsLibrary/wir2013_en.pdf
UNCTAD 2013b, Inward and outward foreign direct investment flows, Viewed 29 July 2013, http://unctadstat.unctad.org/TableViewer/tableView.aspx?ReportId=88
Urata, S, Chia S & Kimura, F 2006, Multinationals and Economic Growth in East Asia: Foreign Direct Investment, Routledge, London and New York NY.
Zhange, K 2006, Foreign Direct Investment and Economic Growth in China, Illinois, Illinois State University
World Bank 2009, World Development Report 2009: Reshaping Economic Geography, Washington D.C, The World Bank.