"South Korea's Foreign Direct Investment Ratio Among OECD 'Lower Tier'... Need to Promote Investment Inflow"

FDI Ratio Ranked 25th, Net FDI Ratio Ranked 28th in the First Half of Last Year

[Asia Economy Reporter Jeong Hyunjin] The Korea Economic Research Institute (KERI) argued that South Korea's ratio of foreign direct investment (FDI) to gross domestic product (GDP) and net FDI ratio in the first half of last year remained in the lower ranks among the Organization for Economic Cooperation and Development (OECD) member countries, and that the domestic investment environment should be improved to promote investment inflow.

On the 3rd, KERI announced through the report titled 'International Comparison and Implications of FDI Ratio Trends in the First Half of 2020' that South Korea's FDI ratio, representing the ratio of FDI to GDP in the first half of last year, was 0.32%, ranking 25th out of 37 OECD countries. The net FDI ratio, calculated by subtracting outward direct investment (ODI) from FDI, was -0.74% of GDP, ranking 28th.

According to OECD statistics, South Korea's FDI ratio ranked between 25th and 36th among 37 OECD countries from 2005 to the first half of last year, remaining in the lower ranks. During the same period, the ODI ratio rose from 27th to 12th, but the net FDI ratio, which is the FDI ratio minus the ODI ratio, was all recorded as negative (-), ranking between 22nd and 33rd in the OECD, remaining in the lower ranks. This means that while FDI inflows into South Korea did not increase significantly, investments flowing out overseas increased.

Looking at the periods, the FDI ratio maintained a similar level of 0.6% from 2005 to 2010, 0.5% from 2011 to 2015, and 0.6% in the first half of 2016 to 2020. However, during the same period, the ODI ratio increased from 1.6% to 1.8% and then to 2.2%, surpassing the OECD and the average of the major five countries (G5). The net FDI ratio was -1.0% in the late 2000s, worsening to -1.4% and -1.6% in 2011-2015 and the first half of 2016-2020, respectively.

KERI stated, "While the rise in the ODI ratio due to the expansion of overseas advancement by domestic global companies is natural, the fact that the FDI ratio has stagnated in the lower ranks of the OECD for a long time means that South Korea's investment attractiveness has declined accordingly," adding, "Although the net FDI ratios of the OECD and major G5 countries have improved, South Korea's has worsened, intensifying the investment imbalance phenomenon." KERI's analysis also shows that an increase in FDI leads to higher growth rates.

Choo Kwang-ho, head of the Economic Policy Office at KERI, emphasized, "Considering South Korea's economic scale, ranked in the top 10 globally, and its ODI ratio, the relatively low FDI ratio is notable," and added, "We need to actively attract foreign companies by deregulation reforms and easing corporate tax burdens to increase the FDI ratio."

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