Inward Investment Efficiency Analysis of Mekong Countries under Economic Cooperation with China and Japan

This paper aims to measure China\u27s and Japan\u27s investment efficiency in Mekong countries i.e. Cambodia, Lao PDR, Myanmar, Viet Nam, and Thailand. Based on the Knowledge-capital model of multinationals, the estimation model is built to examine the degree of Mekong’s inward FDI efficiency with its efficiency determinants (market seeking, factor seeking, export-platform seeking, efficiency seeking) and institutional factors as its inefficiency determinants. Using a stochastic frontier analysis with a panel dataset of bilateral FDI flows from China and Japan to Mekong countries over the years 2009-2016, the investment efficiency scores show that there exists the inward FDI efficiency gap among Mekong countries. The stochastic regression results indicate that an increase in bilateral trade is significantly positive to the inward FDI efficiency in the Mekong region. The similarity of economic size, relative labor endowment, and trade cost are significantly negative to the inward FDI efficiency. It implies that the inward FDI efficiency in Mekong region depends on the advantage of export-platform seeking, market seeking, and efficiency seeking. Mekong’s inward FDI is also significantly restricted by institutional factors. In particular, the high level of control of corruption helps to enhance the investment climate in the Mekong region. These conclusions may be beneficial for making a regional trade and industrial cooperation, and horizontal-and-vertical FDI enhancing policies in the Mekong countries