According to data compiled by the Organization for Economic Cooperation and Development (OECD), South Korean companies’ outbound foreign direct investment (FDI) reached $23.4 billion in the first half of this year, while inbound FDI from foreign companies into South Korea amounted to just $3.9 billion. This means outbound investment was six times greater than inbound, a sharp increase compared to the average multiple of two to three times over the past five years.
S. Korea’s net external financial assets, calculated by subtracting liabilities from overseas financial assets, surged by $119.4 billion in just three months, reaching $977.8 billion at the end of September, according to the Bank of Korea. This rise is partly attributed to domestic investors redirecting their funds from the Seoul stock market to U.S. markets in pursuit of higher returns. While such moves may make sense for individual investors seeking better profits, they could hinder job creation and economic growth within S. Korea.
Another emerging trend is the brain drain of highly skilled professionals. Last year, the United States issued 5,684 employment-based immigration visas to S. Korean workers with advanced degrees and their families.
Assuming an average of four family members per visa, roughly 1,500 skilled workers left for the U.S. Visa issuance per capita for S. Korea is more than ten times that of India or China. Data from the University of Chicago’s Polsky Center shows that 40% of AI professionals who completed graduate programs in South Korea moved abroad in 2022. Over the past decade, nearly 96,000 South Korean science and engineering Ph.D. holders have gone overseas.
Capital, talent, and businesses align with what economics textbooks refer to as the three factors of production: land, labor, and capital. When all three are leaving the country, economic growth becomes increasingly difficult. South Korea’s potential growth rate has declined by one percentage point every five years, a trend tied to this exodus of businesses, talent, and capital.
The reasons for this outflow are clear. Doing business, making money, and building a career in S. Korea have become increasingly challenging. Strict labor regulations make it nearly impossible to dismiss underperforming employees. A rigid 52-hour workweek rule limits research and development capabilities for businesses. Seniority-based pay systems disregard performance or skill levels,
While S. Korea’s inheritance tax laws—some of the world’s highest—can strip families of business control after two generations. Without addressing these structural issues, stemming the outflow of capital, talent, and businesses will remain an uphill battle.
