The Impact of South Korean Direct Investments in the Russian Far East on the Improvement of Their Bilateral Export-Import Activities

Abstract

The Republic of Korea (ROK), due to its geographical proximity to the Russian Far East, has been a close and crucial economic partner of the region alongside other East Asian countries. The increasing of Western sanctions’ pressure and the intensification of Russia’s activation of the “Pivot to the East” will promote the development of cooperation with the Eastern countries, and the role of Eastern Russia is likely to increase, which will increase the role of Russia’s Far Eastern regions. In addition, Western sanctions will direct the country’s foreign policy towards import substitution. On the other hand, the relationship between trade and foreign direct investments (FDI), whether it is complementary or substitutive, is rather controversial and thus has long been debated by several scholars: each case study demonstrates a different result depending on the focus country, economic zones, study period, and so forth. In this sense, this study examines the impact of South Korean FDI in the Russian Far East on their bilateral exports and imports for the period Q2 2017 - Q3 2021. Ordinary least squares (OLS) and robust least squares regression analyses confirm that South Korean FDI stock in the Russian Far East promotes the Russian Far East’s imports from South Korea, while it shows no statistical significance in its exports to South Korea. In order to contribute to the economic growth of the Russian Far East and create win-win effects, the way South Korean companies invest in the Russian Far East should be reformed to localize their production process.

Keywords

• foreign direct investment and trade
• fdi
• substitution relationship
• complementary relationship
• the republic of korea
• rok