FDI helpful to economic growth, current account balance, BOK says

The Korea Herald 2000. 6.7

    Foreign direct investment (FDI) in Korea helps to facilitate the nation's economic growth and improve its current account balance, while it has little impact on the value of the Korean currency against the dollar, the Bank of Korea said yesterday.

    In contrast, foreign investments in stocks and bonds have little impact on Korea's trade, but they work against the nation's economic growth by making the value of the won higher against the greenback, the central bank said.

    In a report on the effect of foreign investments on the national economy between 1980 and 1999, the central bank said that a unit increase in FDI lead to a rise of 0.83 unit in domestic investment.

    FDI has also proved to be in a positive relation to the nation's economic growth, which means that it has contributed to economic gain through improved productivity and technological progress, it said.

    In addition, FDI has had a greater impact on the nation's exports than on imports, helping improve Korea's current account balance, the central bank pointed out.

    Meanwhile, foreign investments in domestic stocks and securities have led to a rise in the value of the Korean won against the dollar but they have had little impact on Korea's trade and domestic firms' investments, it said.

    "The report shows that foreign investments in stocks and bonds can emerge as a hurdle to the nation's economic growth because it can make the Korean won stronger against the dollar and lead to a buildup in inflationary pressure," a central bank official said.

    It is important for the government to make more efforts to attract foreign direct investment rather than lure foreign investments in securities, he added.