In this paper, I tried to find out the spillover effect of foreign direct investment(FDI) in Korea through an empirical analysis. My empirical finding at the industry level was that the spillover effect could be found in some industries, but not in ot...
In this paper, I tried to find out the spillover effect of foreign direct investment(FDI) in Korea through an empirical analysis. My empirical finding at the industry level was that the spillover effect could be found in some industries, but not in other industries. So, I made three hypothesis on the spillover effect of FDI according to three characteristics of industries, e.g. the strength of competition, R&D intensity, technological gap between FDI firms and local firms. The empirical results of those three hypothesis test could be summarized as follows;
Firstly, the spillover effects of FDI was the larger, the weaker the competiton level of the FDI industry. Secondly, the spillover effects of FDI was the larger, the higher the R&D intensity of the FDI inustry. Thirdly, the spillover effects of FDI was the larger, the smaller the gap of technological level between FDI firms and local firms.
The above results suggest that there exists positive spillovers from the FDI firms because these firms might have excellent technologies with the motivation to exploit them in the low competition market, in which market the rate of margin could be so high. In the next stage, local firms may be stimulated to level up their productivity to survive out of the competition with the FDI firms. The second suggestion is that the possibility of spillover could be high when the local firms are engaged in continuous R&D activities. The third suggestion is that the spillover effect could be more enhanced when the technological frontier of FDI firms are more closer with that of Korean firms because the technology will be transferred more easily in this case.