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FDI Externalities and the Response of the Korean Stock Market

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  • 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

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    File URL: http://keapaper.kea.ne.kr/RePEc/kea/keappr/KER-20130630-29-1-06.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    FDI Externalities; Multinationals; Technology Spillover;

    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

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