Examination of the Effectiveness of FDI Incentive Policies in Korea through the Use of the Satisfaction Level Differences
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As Korea was recovering from the financial crisis of 1997, it redirected its governmental policies to actively attracting foreign direct investment. This paper evaluates the effectiveness of the FDI incentive policy in attracting foreign direct investment, through the empirical analysis of the FDI incentive policies enforced after the financial crisis. Also, this paper presents suggestions to improve FDI incentive policies. In particular, the Korean government introduced various incentives to improve the performance of FDI inducement as it decreased rapidly in 2003. This paper provides a framework for a discussion on the necessity of continuing such policies by analyzing their effectiveness in inducing investment. Therefore, this paper is expected to provide significant contributions considering only a few studies on the inducement effects of Korea’s investment incentives among many previous FDI studies, and the lack of studies analyzing the policy effects of the investment incentives introduced after 2003. Empirical analysis was conducted to identify differences in the level of satisfaction with FDI incentives for each investor group depending on the characteristics of each investor. Next, the effectiveness of investment incentives after 2003 in inducing investment and the effectiveness of discriminative operation for investment incentives were analyzed. As a result of the analysis, investment incentives introduced after 2003 were generally ineffective. Moreover, though limited, the effects of discriminative operations of investment incentives by investment locations were shown to be existent and the results showed that preferences toward incentives were different depending on investor characteristics. Furthermore, the study suggested some improvements to the investment incentive policies.
Abstract
As Korea was recovering from the financial crisis of 1997, it redirected its governmental policies to actively attracting foreign direct investment. This paper evaluates the effectiveness of the FDI incentive policy in attracting foreign direct investment, through the empirical analysis of the FDI incentive policies enforced after the financial crisis. Also, this paper presents suggestions to improve FDI incentive policies. In particular, the Korean government introduced various incentives to improve the performance of FDI inducement as it decreased rapidly in 2003. This paper provides a framework for a discussion on the necessity of continuing such policies by analyzing their effectiveness in inducing investment. Therefore, this paper is expected to provide significant contributions considering only a few studies on the inducement effects of Korea’s investment incentives among many previous FDI studies, and the lack of studies analyzing the policy effects of the investment incentives introduced after 2003. Empirical analysis was conducted to identify differences in the level of satisfaction with FDI incentives for each investor group depending on the characteristics of each investor. Next, the effectiveness of investment incentives after 2003 in inducing investment and the effectiveness of discriminative operation for investment incentives were analyzed. As a result of the analysis, investment incentives introduced after 2003 were generally ineffective. Moreover, though limited, the effects of discriminative operations of investment incentives by investment locations were shown to be existent and the results showed that preferences toward incentives were different depending on investor characteristics. Furthermore, the study suggested some improvements to the investment incentive policies.
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