Market Access or Efficient Production: Why Did South Korean Outward Direct Investment Persist After the Crisis?

After the 1997–1998 Asian Financial Crisis, South Korean outward direct investment (ODI) remained at approximately the same level as before the crisis. What explains this remarkable persistence of outward investment, concurrent with a seven-point drop in GDP? After considering contemporary theories of foreign direct investment, this article posits that there are multiple explanations, which are contingent on the size of the firm involved in ODI. For the largest South Korean conglomerates — the five biggest chaebǒl — foreign investment was a way of opening markets to compensate for declining sales at home, whereas other firms used foreign investment to take advantage of production efficiencies made possible by the financial crisis's impact in other countries. In relation to South Korea, China represented an investment destination that could absorb both types of investment. The empirical evidence is suggestive, but not conclusive.