Hankyung Research Institute "Mitigate the Possibility of Mass Unemployment Due to COVID-19 by Encouraging Domestic Companies to Return"

5.6% of Domestic Manufacturers Expanding Overseas Returning Increases Domestic Employment by 130,000

[Asia Economy Reporter Ki-min Lee] There has been a proposal to alleviate the possibility of massive unemployment caused by the novel coronavirus infection (COVID-19) through a large-scale return (U-turn) of domestic companies that have expanded overseas.

The Korea Economic Research Institute (KERI) stated, “COVID-19 has highlighted global supply risks and put a brake on the overseas expansion of companies that had been growing,” and added, “If institutional support is provided to proactively respond to companies’ demand for U-turns, it will greatly help solve the unemployment problem caused by COVID-19.”

Based on the ‘Survey on Domestic U-turn Plans of Manufacturing Companies’ conducted in November 2018, KERI analyzed that if overseas manufacturing companies return due to improvements in domestic institutional factors such as labor market rigidity and excessive corporate regulations, the number of jobs created domestically would increase by 130,000. This corresponds to 11.3% of the 1,153,000 unemployed people in Korea as of February this year.

At that time, KERI revealed that the reasons why domestic manufacturing companies that had expanded overseas did not return to Korea were, in order, the need to expand overseas markets (77.1%), the burden of high domestic wages (16.7%), and domestic institutional factors (5.6%).

If 5.6% of domestic manufacturing companies overseas return to Korea due to improvements in domestic institutional factors, the number of jobs created by industry would be ▲automobile 43,000 ▲electrical and electronics 32,000 ▲electrical equipment 10,000 ▲primary metals 10,000 ▲chemicals 7,000, in that order.

In addition, in this case, domestic production and value-added inducement amounts would be 40 trillion won and 13.1 trillion won, respectively. By industry, these were analyzed as ▲electrical and electronics 12.1 trillion won and 4.6 trillion won ▲automobile 12.1 trillion won and 4.6 trillion won ▲electrical equipment 3.2 trillion won and 900 billion won, respectively.

Choo Kwang-ho, Director of Economic Policy at KERI, stated, “COVID-19 is a major obstacle to our economy, but it is an opportunity to reduce the rapidly increasing net outflow of direct investment through corporate U-turns.” The net outflow of direct investment refers to the figure obtained by subtracting foreign direct investment (FDI) in Korea from domestic companies’ overseas direct investment (ODI).

Director Choo added, “We need to devise proactive policy measures that support cost reduction through tax improvements such as corporate tax cuts and expanded tax credits, and labor reforms, and especially strengthen incentives for large corporations to induce large-scale simultaneous U-turns with their partner companies.”

This content was produced with the assistance of AI translation services.