Comparative Advantage and the Location of Inward Foreign Direct Investment: Evidence from the UK and South Korea

A study seeks to provide empirical evidence on the extent to which the location of foreign direct investment (FDI) is determined by the underlying comparative advantage of the particular location. It examines the relationship between measured comparative advantage according to the factor proportions hypothesis and inward direct investment for 2 countries - the UK and South Korea. Results suggest that comparative advantage of the factor proportions type is an important but not the sole determinant of the location of inward FDI. For the UK, a statistically significant positive correlation between revealed factor abundance rankings and those for the factor intensity of inward FDI can be demonstrated. The evidence for South Korea also produces a statistically significant positive rank correlation between factor abundance and the factor intensity of net inward FDI across all activities.