International investment during the flexible exchange rate period: firm behavior and policy choices in Korea

Abstract

Korea is currently at a crossroads of both opening up of her domestic markets to foreign competitions and internationalization. International investment plays a crucial role in both. The case for outward investment, in particular, is based on two factors. First, the sizeable current account surplus Korea has managed to accumulate in recent years suggests that some net outward investments are inevitable at an aggregate level. Second, there is also a micro micro reason at the level of the firm and investors. Firms may wish to go abroad to circumvent taxes imposed on Korean exports due to protectionism abroad or a high exchange value of the Korean won. The strong won also makes foreign investment attractive for portfolio investors because of its impact on investable wealth, and the expected returns in domestic currency units.