FDI externalities and the response of the Korean stock market

Sung Jin Kang, Hongshik Lee, Joonhyung Lee

Research output: Contribution to journalArticle

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).

Original languageEnglish
Pages (from-to)119-137
Number of pages19
JournalKorean Economic Review
Volume29
Issue number1
Publication statusPublished - 2013

Keywords

  • FDI Externalities
  • Multinationals
  • Technology Spillover

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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