Foreign direct investment (FDI) is found almost everywhere in the world today and closely connected to worldwide globalization. Why do enterprises which are suc-cessfully operating in their home market decide on making investments in unknown and more insecure markets? Why do investment destinations have an interest in admitting foreign investors into the economy? Considering that FDI has grown in importance in the global economy in the last decades, obviously there has to be significant advantages for both sides. The World Investment Report (WIR) of UNCTAD reports in their recent publication (2008) high records in FDI flows in the world (UNCTAD 2008a). While developed countries still attract the largest volume of FDI inflows, developing countries possess the highest growth rate in drawing a significant volume of investment into their economy. Transforming and emerging markets in South, East and Southeast Asia particularly showed rapid development of generated inflows and their economies are prospering. China is a famous exam-ple. In our paper, we would like to introduce a not so well-known little tiger – Vietnam – and South Korea, which is after impressive growth in the last decades due to FDI now on its way to becoming an industrialized country.
First we will give a short theoretical overview of FDI. We will not analyze all global flows and development of FDI. Our focus lies in the development and framework of FDI in both above-mentioned countries and answering the question which impact did FDI have on their economic development. Therefore follows an especially economical introduction of both countries and then a deeper look into sectors of FDI. We will give a short classification of development in Vietnam and in South Korea in comparison to global trends. In the final part of our paper, we will go into risks and weaknesses of both countries. At the end, we will give our conclusion concerning the impact of FDI on the two reviewed countries.
Table of Contents
1. INTRODUCTION
2. GENERAL OVERVIEW OF FOREIGN DIRECT INVESTMENT
2.1 Definition FDI
2.2 FDI versus alternatives
2.3 Business-oriented motivations
2.4 Before decision: Economic analysis
3. COUNTRY INTRODUCTION - VIETNAM
4. COUNTRY INTRODUCTION - KOREA
5. FDI IN VIETNAM AND KOREA
5.1 Classification of FDI in Vietnam and Korea according to world FDI 2007
5.2 Recent Development
5.3 FDI in Vietnam - according to sectors and countries
5.4 FDI in Korea - according to sectors and countries
6. RISKS
6.1 General risks
6.2 Risks and weaknesses in Vietnam
6.3 Risks and weaknesses in Korea
7. CONCLUSIONS
Research Objectives and Themes
The primary objective of this paper is to examine the role and impact of Foreign Direct Investment (FDI) on the economic development of Vietnam and South Korea, providing a comparative analysis of their distinct growth trajectories and investment frameworks.
- Theoretical foundations of FDI and corporate decision-making motivations.
- Comparative analysis of economic development and FDI integration in Vietnam and South Korea.
- Sector-specific investigation of inward and outward FDI flows.
- Assessment of country-specific risks, including legal, political, and economic challenges.
Excerpt from the Book
2.1 Definition FDI
The following definition provides a good, short characteristic in order to identify foreign direct investment. “Foreign direct investment reflects the objective of obtaining a lasting interest by a resident entity in one economy (direct investor) in an entity resident in an economy other than that of the investor (direct investment enterprise). The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence on the management of the enterprise.” (OECD 1996: 7).
Four main dimensions are important (Eng 1998: 403):
1. Transfer of capital from a source country to a host country
2. Element of control over management policy and decisions
This feature distinguishes FDI from other forms of international investment. Lower limit to assume a relevant degree of influence is a minimum of 10 percent shareholding (less than 10 percent it is referred to as portfolio investment). An investment between 10 percent and 50 percent ownership is called cooperative arrangement (no single party holds a majority). An investor has a majority control beginning with 50 percent shareholding.
3. Parent Company as a source of funds for foreign operations
4. Balance of payment or capital flows (equity plus intercompany loans plus reinvestment of profits (earned by foreign affiliates)).
Summary of Chapters
1. INTRODUCTION: Outlines the rise of FDI in the global economy and introduces the research focus on the contrasting economic development paths of Vietnam and South Korea.
2. GENERAL OVERVIEW OF FOREIGN DIRECT INVESTMENT: Defines FDI, differentiates it from other market entry modes like licensing or joint ventures, and discusses the economic motivations behind international expansion.
3. COUNTRY INTRODUCTION - VIETNAM: Provides a portrait of Vietnam’s demographic and economic status, highlighting the transition from a centrally planned to a market-oriented economy.
4. COUNTRY INTRODUCTION - KOREA: Details South Korea's transition from a post-war military-led economy to an industrialized, globally integrated nation.
5. FDI IN VIETNAM AND KOREA: Analyzes the volume, recent trends, and sector-specific FDI data in both nations, contrasting Vietnam's growing role as a host and Korea's shift toward being a major outward investor.
6. RISKS: Examines general investment risks and provides a detailed account of specific challenges in Vietnam and South Korea, such as legal uncertainty, corruption, and infrastructure deficits.
7. CONCLUSIONS: Summarizes the findings on the positive impact of FDI on economic growth, employment, and technology transfer in the two target countries.
Keywords
Foreign Direct Investment, FDI, Vietnam, South Korea, Economic Development, Globalization, Market Entry, Greenfield Investment, Brownfield Investment, Economic Growth, Risk Management, Trade Balance, Industrialization, Emerging Markets, Capital Flows
Frequently Asked Questions
What is the primary focus of this work?
The work provides a comprehensive analysis of the impact of Foreign Direct Investment on the economic development of Vietnam and South Korea, exploring their different stages of industrialization and integration into the global market.
What are the central thematic areas covered?
Key areas include the theoretical framework of FDI, comparative economic portraits of the two countries, sector-specific investment analysis, and an evaluation of country-specific risk factors.
What is the core research goal?
The study aims to determine how FDI contributed to the economic growth of these two nations and how their respective investment environments have evolved over recent decades.
Which scientific methods are utilized?
The study utilizes a comparative analytical approach based on economic data, historical performance reviews, and existing literature on FDI theory and corporate decision-making.
What does the main part of the document treat?
It provides a theoretical overview of FDI, country-specific profiles, detailed analysis of FDI flows per sector, and an assessment of investment risks such as inflation, corruption, and political stability.
Which keywords characterize this work?
Core terms include Foreign Direct Investment, Economic Development, Emerging Markets, Greenfield Investment, and Risk Management.
How has the economic role of South Korea changed compared to Vietnam?
The analysis shows that while Vietnam is still emerging and attracting significant inward FDI, South Korea has evolved into a major international investor, with outward investment flows often surpassing inward flows.
What are the most significant risks for investors in Vietnam?
Investors in Vietnam face administrative barriers, legal uncertainty due to decentralized certification processes, corruption, and infrastructure bottlenecks inherited from the post-war era.
What role does the "Doi Moi" reform play in this context?
Doi Moi serves as the foundational economic reform program in 1986 that facilitated Vietnam's transition to an open, market-oriented economy, enabling the country to attract significant FDI inflows.
- Quote paper
- Roger Ramp (Author), 2009, Foreign Direct Investment in Emerging Markets - Vietnam and Korea, Munich, GRIN Verlag, https://www.grin.com/document/126154
