When Korean Companies' Overseas Investment Increases 25-Fold, Foreign Investment Only Grows Sixfold

KCCI, Comparison of Overseas Direct Investment and Foreign Direct Investment Since 2000
Net Investment Outflow Reaches 310.5 Billion USD

International Comparison of Growth Rates (Multiples) of Overseas Direct Investment and Foreign Direct Investment Considering Economic Growth

[Asia Economy Reporter Choi Dae-yeol] Since 2000, South Korean companies' overseas investments have increased significantly, while the growth rate of foreign companies' investments in Korea has relatively lagged behind, according to an analysis. It is pointed out that the small domestic market, excessive regulations, and a rigid labor market reduce investment incentives.

According to the report "Status and Implications of South Korea's Overseas Direct Investment and Foreign Direct Investment" released by the Korea Employers Federation on the 26th, South Korean companies' overseas direct investment, which was around $21.5 billion in 2000, accumulated to $551.5 billion by last year. In terms of growth rate, it recorded 2,466%, ranking first among G7 countries by a wide margin.

This is the highest level among major countries even considering the increase in national economic growth. During this period, South Korea's GDP growth rate was about 212%, meaning the overseas direct investment growth rate was 11.6 times higher than the GDP growth rate. This is the highest among G7 countries except Japan. Although Japan's overseas direct investment increased about sevenfold during this period, its nominal GDP slightly decreased, so the ratio of overseas direct investment growth to GDP growth was not separately calculated.

Hyundai Motor Indonesia factory. The first complete vehicle factory established by a domestic company in the Southeast Asia region, which began operations earlier this year.

Foreign companies' investment in Korea also appears to be increasing on the surface. The scale of foreign direct investment increased from $43.7 billion in 2000 to a cumulative $263.3 billion by last year, with a growth rate of 502%, ranking first among the G7 countries in terms of growth rate.

Similarly, when considering GDP growth rate, it slightly falls short. The foreign direct investment growth rate was 2.4 times the GDP growth rate, which is lower than the UK (5.5 times), France (3.7 times), Italy (3.3 times), and the US (3.1 times). The absolute amount of foreign direct investment was also the second lowest after Japan.

While South Korean companies' overseas investments have increased significantly, foreign companies' investments in Korea have grown relatively slowly, resulting in a net investment outflow of $310.5 billion over the past 20 years. Net investment outflow is calculated by subtracting the cumulative foreign direct investment from the cumulative overseas direct investment during this period, ranking high after Japan, Germany, Canada, and France. The US and the UK were identified as net inflow countries where overseas companies invested more during this period.

Comparing the scale of outflows to inflows by country over time, South Korea's overseas investment has been rapidly increasing. Until 2000, South Korea's overseas direct investment was 0.49 times foreign direct investment, meaning foreign companies invested more. By 2021, this reversed to 2.10 times, higher than the six G7 countries except Japan.

SK On Battery Plant in Georgia, USA [Image source=Yonhap News]

The rapid increase in South Korean companies' overseas direct investment is primarily attributed to the small domestic market compared to competing countries. Additionally, the Korea Employers Federation analyzed that excessive regulations across all fields including safety and health, environment, and fair trade, as well as a rigid labor market characterized by rapidly rising minimum wages, uniform working hours, and severe labor-management conflicts, are burdensome for corporate management.

Furthermore, the corporate tax top rate ranking rapidly rose from 28th among OECD countries in 2000 to 9th currently, and the inheritance tax rate is among the highest in the OECD, lowering tax competitiveness and hindering corporate sustainability, the Federation explained.

Ha Sang-woo, head of the Economic Research Division at the Korea Employers Federation, said, "While there is an unavoidable aspect of pioneering overseas markets, a large part is due to the domestic investment environment not improving. It is urgent to increase the total investment volume of our companies to secure new growth engines and to expand foreign investment domestically."

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