ECONOMIC IMPACT OF MULTINATIONAL INVESTMENT ON THE KOREAN ECONOMY

Over the last two and half decades, the role of multinational investment in the development process of host less developed countries (LDC's) has long been a subject of controversy. This study is intended to examine the performances of multinational investment in Korea and to evaluate its contribution to the Korean economy. Like other LDC's, the Korean government has been enthusiastic in attracting multinational investment. However, the Korean government has tried to remedy the perceived abuses of multinationals and thereby to maximize the contribution of multinationals to Korea's economic development. Due to such efforts, it appears that multinationals have contributed to increasing the level of employment in Korea. Indeed, multinationals have had a greater absorptive capacity for unskilled labor than indigenous Korean firms in many export-oriented industries such as textiles and electronics. As for the effect on the market structure, it appears that multinationals have not increased market concentration significantly in Korea. Although multinationals have captured an increasing percentage of the domestic market in some industries such as other chemicals, basic metals, and transportations, they nevertheless have started to give up a certain percentage of the domestic markets in many other export-oriented industries. Regarding the effect on domestic investment, which is the main topic of this dissertation, it also appears that multinationals have contributed to capital formation for investment in Korea. Relatively, multinationals have been unimportant sources of capital inflows in Korea. Also they finance a very small proportion of their capital requirement from local sources in Korea. At the same time, it is also observed that multinationals have not taken out more than they have put in. Furthermore, the regression results based on the Two Stage Least Square (2SLS) show that multinationals have contributed to supplementing domestic investment by not increasing domestic consumption significantly. Despite the indications of overall benefits from multinational investment, however, several policies are needed for the more efficient inducement of multinational investment and for the maximum contribution of such investment to the Korean economy: Limited open door policy, further simplification of investment procedures, diversification of investing countries, simplification of investment incentives, and the maintenance of political stability.