Comparision of determinants of foreign direct investment in Asean

Abstract

The study examines the determinants of foreign direct investment (FDI) in ASEAN, by employing the data during 1975-1996 in ASEAN countries ; Indonesia, Malaysia, Philippines, Singapore, and Thailand. The study uses a macro equation to investigate the determinants of FDI. The main mechanism of the equation focuses principally on the net FDI inflow which is determined by macroeconomic factors. There are 8 determinants of FDI which be brought to study in the model ; the level of GNP, the change in GNP, the degree of openness, the government expenditure, labour cost, the exchange rate and the squared deviation of the exchange rate. The first five determinations will affect on FDI, but the last two determinations cannot be used because the ASEAN countries use the fixed exchange rate during 1975 to 1996. The level of GNP, the change in GNP, the degree of openness, and the government expenditure are the determinants which have positive impact on FDI, while labour cost has negative impact on FDI. Only the domestic investment has not been significant. In the part of empirical results, the level of GNP are significant in Indonesia, Malaysia, and Philippines, while labour cost are significant in only Singapore, and the government expenditure are significant in only Malaysia. The degree of openness are significant in Indonesia, Singapore and Thailand, and the change in GNP are significant in Philippines and Thailand. Therefore, the determinants of FDI in each countries in ASEAN are different. The net FDI inflow in the study is only net inward FDI inflow, not the amounts of inward and outward FDI. Therefore, the results of estimation show only the determinants of net inward FDI. For further study, a researcher can study the determinants of net outward FDI or the net amounts of inward and outward FDI. These other two definitions of FDI may give a different result when compared with this study.