This paper empirically investigates how Korean multinational enterprises’
outward FDI influences intra-industry trade(IIT) at the various Korean
Standard Industrial Classification(KSIC) levels. Using panel data covering FDI
to US and China between 2001 and 2009, this paper finds a positive and
significant relationship between IIT and FDI at the KSIC middle level, even
after controlling for intra-industry firm heterogeneity, factor and skill
endowments, and home and host country trade costs. In particular, outward
FDI accounts for 33% of IIT in manufacturing between 2004 and 2009. It is
stronger at the electrical, electronics and motor vehicles than at the other
manufacturing sectors.