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Lessons from Investment Policy Reform in Korea

Author

Listed:
  • Françoise Nicolas

    (Institut Français des relations internationales)

  • Stephen Thomsen

    (OECD)

  • Mi-Hyun Bang

    (OECD)

Abstract

As more and more countries seek to liberalise their foreign investment regimes to attract global flows of foreign direct investment (FDI), an essential question for policy-makers is no longer just what to reform but also how to reform. How is a reformist government to sell the idea of reform to the general public and to counter any opposition to reform? How are those who lose from reform in the short term to be compensated? Does sequencing of reforms matter? Korea offers a particularly interesting case study because its reforms beginning in the 1990s were both rapid and far-reaching. Based on the OECD FDI Regulatory Restrictiveness Index, Korea was the biggest reformer of its policies towards FDI between 1997 and 2010 among a sample of 40 developed and emerging countries. The objective of this study is to document the liberalisation of the FDI regime in Korea and to examine how and why it came about. What were the main obstacles and what were the main drivers? How did FDI liberalisation relate to other reforms (trade policy and regulatory reform, policies towards outward investment)? The paper does not ask what more Korea needs to do but rather what lessons can we draw from the Korean experience about how to achieve rapid and sustainable reforms? The insights from Korean liberalisation are useful for other countries, particularly non-OECD members in Asia and elsewhere, which still have high levels of statutory restrictions as measured by the FDI Index. Many of these countries are eager to attract more investment and recognise that they will need to reform their investment regime but are unsure how best to proceed. Each country?s reform path is unique, and this study will not provide a roadmap for other countries to follow, but it will nevertheless serve as a useful model for reformers in other countries and provide evidence that successful reform is accompanied by rising inflows of direct investment.

Suggested Citation

  • Françoise Nicolas & Stephen Thomsen & Mi-Hyun Bang, 2013. "Lessons from Investment Policy Reform in Korea," OECD Working Papers on International Investment 2013/2, OECD Publishing.
  • Handle: RePEc:oec:dafaaa:2013/2-en
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    File URL: http://dx.doi.org/10.1787/5k4376zqcpf1-en
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    Cited by:

    1. Hille, Erik, 2016. "The impact of foreign direct investments on regional air pollution in the Republic of Korea: A way ahead to achieve the green growth strategy?," Annual Conference 2016 (Augsburg): Demographic Change 145517, Verein für Socialpolitik / German Economic Association.
    2. Sta. Romana, Leonardo L., 2014. "Some Lessons from Korea's Industrialization Strategy and Experience," EconStor Preprints 102088, ZBW - German National Library of Economics.

    More about this item

    Keywords

    FDI Regulatory Restrictiveness Index; foreign direct investment; investment policy reform; segyehwa; South Korea;

    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
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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