FDI Effects of ASEAN Integration

For the past two decades, ASEAN Member States have pursued intra-regional market liberalization in order to provide more flexibility to multinationals and therefore promote the region as a competitive production platform. Attracting FDI has been a key objective of this regional project. This paper describes and analyzes recent trends in FDI to and among ASEAN countries, mainly comparing FDI patterns before and after the Asian Crisis, to characterize and assess the region‟s strategies to liberalize and facilitate investment. We find that FDI flows to ASEAN countries suffered after the Asian Crisis but have picked up since 2005. Moreover, ASEAN FDI is dominated by Singapore. In addition, the sectoral distribution of FDI has changed in some members of ASEAN (i.e., Malaysia, Singapore, and Thailand) but not in others. We also perform an econometric analysis of the determinants of FDI to check for ASEAN-specific changes in FDI in the post-Crisis period. Our results, after controlling for a host of factors, indicate that ASEAN countries suffered a fall in total FDI but experienced an increase in intra-regional FDI after 1998. Moreover, we do not find any significant impact of FDI in China on ASEAN FDI