Asymmetric Effect of China's Outward Foreign Direct Investment on the Economic Growth of the Korean Peninsula

The effect of China's outward foreign direct investment (OFDI) on the economic growth of the Korean Peninsula has seldom been examined. Therefore, this paper explores the effect of Chinese FDI on economic growth in the Korean Peninsula from 2003 to 2017. Using an autoregressive distribution lag model and the Granger causality test with vector error correction, we conclude that China's OFDI has made a significant contribution to economic growth in this area in both the short and long terms. However, this contribution has an asymmetric effect; that is, the contribution of China's OFDI to North Korea's economic growth is significantly greater than that of its contribution to growth in South Korea. The results of the Granger causality test with vector error correction show a bidirectional causality between China's OFDI and economic growth in the Korean Peninsula. In addition, we investigate the effects of total consumption and trade openness on economic growth in the Korean Peninsula. To maintain the stability of the model and ensure the reliability of the results, we conduct many important statistical tests, the results of which show that the governments of the two countries on the Korean Peninsula must attract more foreign investment for sustainable economic development