IDEAS home Printed from https://ideas.repec.org/a/kea/keappr/ker-20130630-29-1-06.html
   My bibliography  Save this article

FDI Externalities and the Response of the Korean Stock Market

Author

Listed:
  • Sung Jin Kang, Hongshik Lee, Joonhyung Lee

    (Korea University, Korea University, University of Memphis)

Abstract

This paper addresses foreign direct investment (FDI) externalities using capital market data of Korean stock exchange and examines the effects of FDI in both manufacturing and service sectors. The empirical findings in this paper are generally consistent with previous findings based on the traditional productivity measure from Cobb-Douglas production function: 1) the market value of listed stocks in the manufacturing sector responds to the Horizontal (intra-industry) effects in a positive way, and 2) the market value of listed stocks in the manufacturing sector benefits from foreign invested downstream manufacturing firms, which is often called backward linkages (i.e. supplying manufacturing goods to foreign invested firms generates positive externalities to domestic manufacturing suppliers. The new finding of this paper is that the market value of listed stocks in the manufacturing sector benefits from foreign invested service firms through forward linkages (i.e. service from foreign invested firms generates positive externalities to domestic manufacturing firms).

Suggested Citation

  • Sung Jin Kang, Hongshik Lee, Joonhyung Lee, 2013. "FDI Externalities and the Response of the Korean Stock Market," Korean Economic Review, Korean Economic Association, vol. 29, pages 119-137.
    • Handle: RePEc:kea:keappr:ker-20130630-29-1-06
    as

    Download full text from publisher

    File URL: http://keapaper.kea.ne.kr/RePEc/kea/keappr/KER-20130630-29-1-06.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Moser, Christoph & Rose, Andrew K., 2014. "Who benefits from regional trade agreements? The view from the stock market," European Economic Review, Elsevier, vol. 68(C), pages 31-47.
    2. Cockburn, Iain & Griliches, Zvi, 1988. "Industry Effects and Appropriability Measures in the Stock Market's Valuation of R&D and Patents," American Economic Review, American Economic Association, vol. 78(2), pages 419-423, May.
    3. Hartigan, James C & Kamma, Sreenivas & Perry, Philip R, 1989. "The Injury Determination Category and the Value of Relief from Dumping," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 183-186, February.
    4. Holger Görg & David Greenaway, 2016. "Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 9, pages 163-189, World Scientific Publishing Co. Pte. Ltd..
    5. Laura Alfaro & Andrés Rodriguez-Clare, 2004. "Multinationals and Linkages: An Empirical Investigation," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 113-169, January.
    6. Brian J. Aitken & Ann E. Harrison, 2022. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 6, pages 139-152, World Scientific Publishing Co. Pte. Ltd..
    7. Laura Alfaro & Areendam Chanda & Sebnem Kalemli-Ozcan & Selin Sayek, 2006. "How Does Foreign Direct Investment Promote Economic Growth? Exploring the Effects of Financial Markets on Linkages," NBER Working Papers 12522, National Bureau of Economic Research, Inc.
    8. Breinlich, Holger, 2014. "Heterogeneous firm-level responses to trade liberalization: A test using stock price reactions," Journal of International Economics, Elsevier, vol. 93(2), pages 270-285.
    9. Jaffe, Adam B, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value," American Economic Review, American Economic Association, vol. 76(5), pages 984-1001, December.
    10. Alla Lileeva, 2010. "The benefits to domestically owned plants from inward direct investment: the role of vertical linkages," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(2), pages 574-603, May.
    11. Blalock, Garrick & Gertler, Paul J., 2008. "Welfare gains from Foreign Direct Investment through technology transfer to local suppliers," Journal of International Economics, Elsevier, vol. 74(2), pages 402-421, March.
    12. John S. Hughes & Stefanie Lenway & Judy Rayburn, 1997. "Stock Price Effects of U.S. Trade Policy Responses to Japanese Trading Practices in Semi-conductors," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 922-942, November.
    13. Bronwyn H. Hall & Robert E. Hall, 1993. "The Value and Performance of U.S. Corporations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 1-50.
    14. Alla Lileeva, 2010. "The benefits to domestically owned plants from inward direct investment: the role of vertical linkages," Canadian Journal of Economics, Canadian Economics Association, vol. 43(2), pages 574-603, May.
    15. Galina Hale & Cheryl Long, 2011. "Are There Productivity Spillovers From Foreign Direct Investment In China?," Pacific Economic Review, Wiley Blackwell, vol. 16(2), pages 135-153, May.
    16. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
    17. Hartigan, James C & Perry, Philip R & Kamma, Sreenivas, 1986. "The Value of Administered Protection: A Capital Market Approach," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 610-617, November.
    18. Jonathan E. Haskel & Sonia C. Pereira & Matthew J. Slaughter, 2007. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 482-496, August.
    19. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-338, May.
    20. Laura Alfaro & Areendam Chanda & Sebnem Kalemli-Ozcan & Selin Sayek, 2006. "Foreign Direct Investment, Financial Markets and Economic," 2006 Meeting Papers 369, Society for Economic Dynamics.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Neil Foster-McGregor, 2012. "Innovation and Technology Transfer across Countries," wiiw Research Reports 380, The Vienna Institute for International Economic Studies, wiiw.
    2. Gustavo Canavire-Bacarreza & Luis Castro Peñarrieta, 2021. "Can licensing induce productivity? Exploring the IPR effect," Empirical Economics, Springer, vol. 61(2), pages 549-586, August.
    3. Keller, Wolfgang, 2010. "International Trade, Foreign Direct Investment, and Technology Spillovers," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 2, chapter 0, pages 793-829, Elsevier.
    4. Laura Alfaro & Sebnem Kalemli‐Ozcan & Selin Sayek, 2009. "FDI, Productivity and Financial Development," The World Economy, Wiley Blackwell, vol. 32(1), pages 111-135, January.
    5. Stephan Huber, 2018. "Product Sophistication and Spillovers from Foreign Direct Investment," Contributions to Economics, in: Product Characteristics in International Economics, chapter 0, pages 51-90, Springer.
    6. Kolasa Marcin, 2008. "How does FDI inflow affect productivity of domestic firms? The role of horizontal and vertical spillovers, absorptive capacity and competition," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 17(1), pages 155-173.
    7. Luis Castro, 2012. "Does Licensing Induce Technological Spillovers to Domestic Firms?," Development Research Working Paper Series 12/2012, Institute for Advanced Development Studies.
    8. Markus Eberhardt & Christian Helmers & Zhihong Yu, 2011. "Is the Dragon Learning to Fly? An Analysis of the Chinese Patent Explosion," Discussion Papers 11/16, University of Nottingham, GEP.
    9. Gustavo Canavire-Bacarreza & Luis Castro Peñarrieta, 2017. "Can IPR Affect MNE’s Entry Modes? The Chilean Case," Documentos de Trabajo CIEF 15808, Universidad EAFIT.
    10. Crescenzi, Riccardo & Gagliardi, Luisa & Iammarino, Simona, 2015. "Foreign multinationals and domestic innovation: Intra-industry effects and firm heterogeneity," Research Policy, Elsevier, vol. 44(3), pages 596-609.
    11. Sarker, Bibhuti & Serieux, John, 2022. "Foreign-invested and domestic firm attributes and spillover effects: Evidence from Brazil," Journal of Multinational Financial Management, Elsevier, vol. 63(C).
    12. Smeets, Roger & de Vaal, Albert, 2016. "Intellectual Property Rights and the productivity effects of MNE affiliates on host-country firms," International Business Review, Elsevier, vol. 25(1), pages 419-434.
    13. Ebghaei, Felor, 2015. "Yabancı İştirakli Firmaların İhracat Yöneliminin Doğrudan Yabancı Sermaye Yatırımlarının Dikey Yayılmaları Üzerindeki Etkileri: Türkiye İmalat Sanayi Örneği [Effect of Firm’s Export-Orienteation on," MPRA Paper 77893, University Library of Munich, Germany, revised Mar 2017.
    14. World Bank Group, 2017. "Investment Policy and Promotion Diagnostics and Tools," World Bank Publications - Reports 28281, The World Bank Group.
    15. Ebghaei, Felor & Akkoyunlu Wigley, Arzu, 2015. "Yabancı İştirakli Firmaların İhracat Yöneliminin Doğrudan Yabancı Sermaye Yatırımlarının Dikey Yayılmaları Üzerindeki Etkileri: Türkiye İmalat Sanayi Örneği [Effect of Firm’s Export-Orienteation on," MPRA Paper 77954, University Library of Munich, Germany, revised Mar 2017.
    16. Orlic, Edvard & Hashi, Iraj & Hisarciklilar, Mehtap, 2018. "Cross sectoral FDI spillovers and their impact on manufacturing productivity," International Business Review, Elsevier, vol. 27(4), pages 777-796.
    17. Yanling Wang, 2013. "Exposure to FDI and new plant survival: evidence in Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(1), pages 46-77, February.
    18. Agarwal, Natasha & Milner, Chris & Riaño, Alejandro, 2014. "Credit constraints and spillovers from foreign firms in China," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 261-275.
    19. Olivier N. Godart & Holger Görg, 2016. "Suppliers of multinationals and the forced linkage effect: Evidence from firm level data," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT, chapter 15, pages 277-288, World Scientific Publishing Co. Pte. Ltd..

    More about this item

    Keywords

    FDI Externalities; Multinationals; Technology Spillover;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kea:keappr:ker-20130630-29-1-06. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: KEA (email available below). General contact details of provider: https://edirc.repec.org/data/keaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.