Subnational Investment Promotion Agencies and Foreign Direct Investment in South Korea: A District-Level Analysis

Abstract

A growing number of governments around the world at both national and subnational levels have shored up their efforts at attracting foreign direct investment (FDI) by setting up an investment promotion agency (IPA). A newly emerging literature has sought to ascertain if and how such agencies have fulfilled their missions. In this article, we seek to move it forward by making two contributions. First, taking advantage of the Foreign-Business Friendliness Index (FBFI) data that cover all district-level local governments in South Korea, we are able to conduct a comprehensive study of local IPAs within a single country. Second, the detailed information in the data also enables us to examine precisely which organizational structures and activities of the IPAs are most responsible for the enhanced FDI performance. Key findings suggest that the way IPA's internal organizational structure is set up matters. Specifically, we show that IPAs that have an IP committee in conjunction with a designated IP department significantly outperform those that do not have both at the same time.