Local Culture and Location Choice: Foreign Direct Investment in Vietnam

Abstract

This study analyzes how the Korea-India CEPA and the third FTA influences the bilateral trade bewteen Korea and India using the trade date over 2001-2018. The results show that the Korea-India CEPA is playing a role in increasing the bilateral trade. However, as other FTAs have developed competitive relations with the Korea-India CEPA, the bilateral FTA has a negative impact on the bilateral trade. In particular, the sector that has a negative impact on industry-wise analysis shows that Korea is losing its competitiveness or is in worse conditions than other FTAs. Thus, These areas are need to be improved in the Korea-India CEPA amendment negotiations. In addition, some FTAs have been found to play a role in improving the Korea-India trade. This implies that the bilateral trade will expand as the GVC system is well established with the countries of other FTA signed by the two countries. Therefore, it is necessary to establish a mutually win-win system between the Korea-India CEPA and other FTAs by delicately establishing GVC system with other countries. In conclusion, the FTA signed between the two countries may have negative trade diversion effects, but if it is used well with a delicate GVC system, it could lead to positive trade diversion effects.