East Asian Economic Review

Korea Institute for International Economic Policy (대외경제정책연구원)
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Investing Abroad, Transforming at Home: An Empirical Study of Outward Foreign Direct Investment and Korean Manufacturing's Servicification

  • Received : 2023.12.11
  • Accepted : 2024.03.18
  • Published : 2024.06.30
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Abstract

This paper empirically examines the relationship between outward foreign direct investment (OFDI) of Korean manufacturing firms and the servicification of domestic employment using a firm-level panel data. In this study, considering the issue of low productivity in the Korean service sector, we categorize service employment into core and non-core services and investigate their relationship with OFDI using the firm-fixed effects model. The empirical results show that the share of core service employment exhibits a positive correlation with the extensive OFDI. On the other hand, the share of non-core service employment, which is expected to generate relatively low value-added, does not show a significant relationship with the extensive OFDI. When we divide the samples based on host countries and the type of subsidiaries, the impact on servicification varies depending on the technological capabilities of host countries and their participation in global value chains. Our study suggests that Korean manufacturing firm's internationalization strategies may facilitate a transition from labor-intensive employment, like the cases in advanced countries, to technology-intensive employment through OFDI and other means.

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