Asia-Pacific Journal of Business (아태비즈니스연구)

KNU The Institute of Management & Economy Research (강원대학교 경영경제연구소)
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The Effect of Economic Liberalization on Foreign Direct Investment

경제자유화가 외국인직접투자 유치에 미치는 영향

  • Kim, Nam-Su (Department of International Trade, Busan University of Foreign Studies)
  • 김남수 (부산외국어대학교 국제무역학과)
  • Received : 2021.11.30
  • Accepted : 2021.12.23
  • Published : 2021.12.31
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Abstract

Purpose - This study analyzed the correlation between economic liberalization and foreign direct investment. The purpose of this study is to seek ways to attract foreign direct investment from developing countries. Design/methodology/approach - This study analysed with observations of 19 from 2000 to 2018 using a fixed effect model, a random effect model, and a two-way fixed effect model. Findings - First, it was found that economic liberalization had a positive effect on attracting foreign direct investment in the early stages of economic liberalization. Second, it was found that economic liberalization in the deepening stage of economic liberalization had a negative effect on attracting foreign direct investment. In general, it was found that the higher the level of economic liberalization in developing countries is not accompanied by innovative changes in the industrial structure, the higher the level of economic liberalization is likely to decrease the inducement of foreign direct investment due to negative factors such as an increase in labor costs. Overall, this study approved that Economic liberalization have a non-linear (inverted U-shape) relationship with the inflow of foreign direct investment. Research implications or Originality - First, this study attempted to expand the variables for the determinants of FDI by analyzing economic factors which is a determinent of FDI. Second, economic liberalization generally has a positive effect on foreign direct investment, but it proved that it does not have only positive effects as a factor of attracting foreign direct investment in developing countries. The advantage of low wages in ASEAN countries acts as a factor for foreign direct investment, but as the degree of economic liberalization increases, the environment such as government size, guarantee of property rights, international trade freedom, fiscal soundness, and regulations change positively. On the other hand, it can be suggested that if the industrial level is less, it may lead to a loss of comparative advantage and a decrease in investment.

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References

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