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FDI attraction key to creating jobs (January 21, 2013. The Korea Times)
- Date : 2013.01.24
- Views : 1224
FDI attraction key to creating jobs
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Given the prolonged global recession and seemingly continuous downside risks of the world economy, President-elect Park Geun-hye faces daunting challenges in keeping her campaign promises. The upshot of her campaign slogan is to usher in an era of happiness for people of all ages with emphasis on expanding the middle class via strengthened welfare programs and job creation. The majority of voters who belong to the middle and lower income bracket and people in their 50s and 60s appear to wholeheartedly support her with great expectations about her campaign promises.
It is a harsh reality that Korea experienced a rapidly shrinking middle class while twice going through unprecedented economic crises, namely the Asian financial crisis in 1997-98 and the recent global financial meltdown in 2008 and subsequent global recession. In the past decade and a half, Korea’s structural reforms to muddle through two crises in an increasingly globalizing world economy have resulted in acute income polarization and jobless growth.
But it has been widely pointed out that there will be an immediate budget constraint even in Park’s inaugural year as she covers a host of welfare pledges including a basic pension for people over 65, a college tuition reduction and healthcare support for four major types of diseases, to name just a few important ones. To make matters worse, the economic outlook for this year is not promising. The Bank of Korea last week cut Korea’s growth outlook to 2.8 percent from its earlier estimate of 3.2 percent. Against this backdrop, the new administration needs a sort of stimulus package, as the drastic quantitative easing policy of Japan suggests.
During their presidential campaigns, neither the candidate from the governing party nor the one from the main opposition party addressed policy platforms in regards to external economic relations. Despite a gloomy economic outlook, there is one piece of good news for Korea. The country’s inbound foreign direct investment (FDI) last year, funds that actually arrived here, soared to $10.4 billion ― the highest since 1999 ― up from $6.6 billion in 2011. Still, Korea’s outward foreign investment by Korean companies, at $26 billion in 2011 (the figure for 2012 is not available but $18 billion up to quarter three) is far greater than Korea’s inward amount. The sharp rise in inbound FDI is basically attributable to a drastic increase from Japan and to a lesser extent the U.S. due to the effectuation of Korea’s free trade agreements with the EU in 2011 the and U.S. in 2012 and a massive earthquake in Japan two years ago. Nevertheless, the net upsurge of inward FDI, amounting to $4 billion in 2012, has significantly contributed to increasing capital stock, job creation, knowledge transfer and outsourcing from local SME vendors. Multinational companies in Korea in 2010 accounted for roughly 12 percent of Korea’s total exports and provided 308,000 jobs, sharing 4.2 percent of Korea’s total employment.
Korea’s new government needs to recognize that aggressive inducement of quality FDI is an effective way to realize the President-elect’s campaign promises, especially for the creation of decent jobs. The new government should promote cross-border investment, entrepreneurship and knowledge transfers in addition to trade liberalization by creating a level playing field for domestic and foreign firms alike. The growing importance of global value chains and the emergence of non-equity modalities of international production such as contract manufacturing and service outsourcing should also be acknowledged as new ways of doing business. Both the expansion and strengthening of SMEs, together with expanded welfare programs, must be pursued in an unyielding orientation to globalization, open and fair trade and cross-border investment. Both the emulation and convergence of the best global practices should remain a crucial tenet of the new administration’s FDI policy regime.
We should not let our next generation bear the burden of financing excessive welfare expenditure for the present generation. Koreans must be prepared to enhance the stalled total factor of productivity in a fairer market environment to move toward an advanced open economy by reinvigorating itself through challenges and crisis.
http://www.koreatimes.co.kr/www/news/biz/2013/01/346_129132.html