The Effect of Export and Foreign Direct Investment
on Employment Growth in Busan and Incheon
Busan and Incheon are the second or the third largest city in the economic volume and population level basis in Korea. These also have something in common as export city and one of the biggest ports in the northeast Asia.
This paper aims at doing empirical analysis on the impact of export and Foreign Direct Investment(FDI) on employment growth and at explaining what happens to two areas by comparing the results.
When it comes to the empirical analysis, I apply three kinds of the methods, the correlation coefficient analysis, Granger casuality test and multi-regression model. The estimated equations for the multi-regression model is derived from Cobb-Douglas production function. The data over the period 1991-2009 is obtained from several sources including regional statistics yearbook.
The main conclusions of this paper come from the three parts-the empirical results from Busan, the empirical ones from Incheon and the comparison of two city's results.
The results of estimation of this paper are as follows.
First of all, the results of estimation show that employment growth in Busan has been influenced by domestic growth more than by export and also by FDI more than by export. So it should be noted that the job creation of FDI is superior to that of export.
In case of Busan, estimated export coefficient has surprisingly negative sign on employment. This result is due to the de-industrialization that become widespread fast in Busan economy since 1990 as is often the case in Korea economy as well as advanced countries such as USA, Japan, etc.
It is recognized the fact that Busan economy is undergoing structural changes toward service industry like Incheon economy. This changes in intra-economy seem to substantially influence the effect of export on employment.
The next result is the effect of FDI on employment. The estimated coefficient of FDI is positive sign of 0.0087. It indicates that when FDI rise 1%, employment is 0.0087% increasing in Busan. FDI has influenced on improving employment.
When it comes to the employment policy in Busan, It is judged that Busan city should focus on implementing the policies which enhance the investment for the domestic growth just like FDI rather than which encourages the export.
Afterwards, although Incheon economy is also undergoing structural changes toward service industry, the estimated coefficient on the effect of export on employment turns out to be positive sign contrary to Busan case. Subsequently, it is shown that the export can be one of the significant factor of employment growth and then of regional economy growth through increasing export in Incheon.
According to the results of statistical analysis, as noted above, even though Incheon economy entered into the stage of de-industrialization at employment level, the effect of real output. export volume on employment outgoes almost twice than that of Busan city.
As for FDI, The estimated coefficient of FDI records 0.0018. Another important factor, FDI has influenced employment growth more than export.
In other words, because the presence of FDI is affecting employment growth confirmatively, it is a good ways to improve the regional economy. Accordingly, Incheon city should concentrate on implementing the policies which help attract the FDI more than export.
To conclude, based upon the estimated results of two cities, I reach the conclusion in terms of the policy that Busan should focus on FDI more than export and Incheon should do on export and FDI at the same time to improve employment.