Impact of Fdi and Economic Growth

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Foreign Direct Investment and Economic Growth in South Korea and Policy Lessons for Nepal

(A Master Degree Dissertation)

Submitted by:
Raj Kumar Rai
MSc. International Finance
Student Ref No: M00235713

Submitted to:
Middlesex University Business School, London
2008/09

September 25, 2009
London, United Kingdom

I

Abstract

Foreign direct investment (FDI) is taken as one of the key factor of rapid economic growth and development. FDI, it is believed to stimulate domestic investment, human capital, and transfers technology. It is associated qualities which causes the faster economic development in the host countries. South Korea, for instance had one of the of the poorest economies during 1960s, but yet achieved double digit economic growth with substantial amount of FDI inflows and become one of the most advanced economies in the world less than in a half century and a member of OECD country. This paper evaluates the role of FDI in South Korea’s economic growth employing macro economic times series data from 1980-2005.The other variables such as foreign direct investment, human capital, export, employment and domestic investment. This study uses the endogenous growth model to explore the role of FDI in economic growth. The role of FDI in economic growth is not statistically significant; however, the interaction between FDI and human capita, export and domestic capital is positive. This study supports the findings of Kim and Hwang (2000) in the case of Korean economic study of FDI and economic growth.

Key word: Foreign Direct Investment, Economic growth, South Korea
II

Acknowledgements

I am heartily thankful to my supervisor, Mr. Leslie Taylor, whose guidance and supervision from the beginning to the concluding level enabled me to develop an understanding of the project. I would like to express my gratitude to Dr. Michela Vecchi for her support my queries in this dissertation writing.

I would like to take this opportunity to thank to my family members who directly supported me to satisfy the thirst of higher education in abroad. Especially, I am heartily obliged to my parents, elder brother Sarba Rai and sister in law Durga Devi Rai and brother Prashan Rai (USA) for their continuous support and encouragement for my studies at the University. I would love to remember niece Alina and Melina and Nephew Siddharth for their warm smiling at my approaches to them for making joyful life in the UK.

It is my pleasure to thank some of my friends who made research works more interesting and useful, especially; I would remember Mr. Lok Bhandari, Mr. Shree Basnet, Mr. Ramesh Shrestha, Mr. Tap Rai, Mr. Naresh Rai, Mr. Pratap Bhatarai and Miss. Bina Rai.

Last but not the least, I would like to express may gratitude to the library staffs at the Middlesex University for providing necessary reading materials for my dissertation.

Raj Rai
21, September 2009

III
TABLE OF CONTENTS

Abstract…………………………………………………………………I Acknowledgement……………………………………………………..II Table of contents………………………………………………………III List of tables……………………………………………………………IV List of figures…………………………………………………………..V Abbreviations………………………………………………………….VI

CHAPTER
1.Introduction………………………………………………..
Rationale for the study…………………………………….
Statement of problem………………………………………
Research Objectives………………………………………..
Limitations of the Study……………………………….......
Organization of the Study……………………………….....

CHAPTER
2.Review of Literature………………………………………
FDI Theories……………………………………………….
FDI and Motives…………………………………………..
FDI and Entry Modes…………………………………….
Factors Affecting Location Choice of FDI………………
Empirical Studies………………………………………… CHAPTER
3(A) An Overview of South Korean Economy ……………..
3.1.1 A brief Korean Economy after 1950s…………………..... 3.1.2 Korean economic performance after Asian Financial Crisis…

CHAPTER
3(B) An Overview of Nepalese Korean Economy ………………..
3.2.1 Foreign Trade pattern of...
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