A Study of the Impact of FDI and Industrial Agglomeration in China on Exports to South Korea

Purpose - The purpose of this paper is to study the impact of FDI and industrial agglomeration in China on Korea-China trade. In addition, this paper analyzes the interactional relationship between exports, FDI, and manufacturing agglomeration in China. Design/Methodology/Approach - This paper conducts an empirical analysis using panel data on exports from China’s 17 provinces to South Korea from 2010-2018. This paper establishes a research model based on the gravity model and the moderating effect model. The research model was analyzed using the two-way fixed effects of controlled provinces and years. This paper uses panel data of 31 provinces in China from 2008-2018 to establish a simultaneous equations model (SEM) for the analysis of the relationship between exports, FDI, and manufacturing agglomeration. Findings - The empirical research shows that FDI is positive for exports to Korea, and the interaction between FDI and manufacturing agglomeration is positive, indicating that manufacturing agglomeration plays a positive moderating effect in the relationship between FDI and exports to Korea. In China, exports and manufacturing agglomeration can promote FDI, exports and FDI can promote manufacturing agglomeration, and FDI can promote exports, but manufacturing agglomeration can not directly promote exports. Research Implications - The research results show that FDI and industrial agglomeration in China have a significant impact on Korea-China trade. Based on the results, this study provides a new perspective on trade policy and economic policy formulation for the two governments.