Effects of overseas investment on export and import in the information and communication technology industry

The effect of overseas investment in domestic ICT sub-industries on the increase in exports and imports was analyzed based on country panel data of 22 countries during the period 2000-2021. In estimating the panel model including the year effect and the fixed effect, the problem of endogeneity due to the reverse causal effect of imports and exports on the overseas investment and the problem of non-stationarity clearly present in the time series of exports and imports are considered. Estimation results show that overseas investment in the component manufacturing sector, which accounts for the largest share of Korea's exports and trade balance, centered on semiconductors, has a negative impact on ICT export increase and a positive effect on ICT import increase, and, thus, negatively affects the trade balance. These results could be interpreted as forming an export base through overseas investment in the component manufacturing sector. In contrast, overseas investment in the software sector, centered on system integration services for overseas subsidiaries, had a positive effect only on the increase in exports. On the other hand, foreign investment in the final goods manufacturing industry or telecommunication broadcasting service industry did not have a statistically significant effect on trade.