Cayman Over China: Trends and Accounting Factors of South Korea’s Outward Foreign Direct Investment

We examine recent trends of South Korea’s outward foreign direct investment from 2001 to 2021, which shows substantial change in terms of the total amount and compositions. Using gravity models, we test whether these differential time trends across the industries and destination countries survive after incorporating economic factors. Controlling for economic conditions, we find that the FDI to China has been declining much earlier than the China–South Korea political dispute, while the FDI to USA shows a steady increase, making it the top FDI destination throughout the sample period. Investment in tax haven shows rapid increase across all sizes of South Korean investors and therefore, further research is needed on its implications for tax evasion.