Relative foreign direct investment attractiveness among ASEAN countries

Abstract

This study aims to explore the determinants of inward FDI in 4 ASEAN countries, namely; Thailand, Malaysia, Indonesia and Vietnam, from selected home countries in ASEAN, and also to explore the causes for their differences in inward FDI. Panel Data Estimation was used to analyze the determinants of FDI in these 4 host countries from selected home countries in ASEAN. Oaxaca-Blinder decomposition was applied to examine the causes of the difference in inward FDI by quantifying the contribution of each explanatory variable to the total gap, as a percentage of the total FDI gap, with some of the differences in FDI inflows between host ASEAN countries can be explained by the differences in the characteristics, so one will be able to learn which factor contributes to the increase or decrease of FDI gap between host countries. Findings reveal that real wage helps to attract FDI into Thailand. Real GDP helps to attract FDI into Vietnam. Real exchange rate, real lending interest rate and geographic distance help to attract FDI into Malaysia. Real exports, real exchange rate and geographic distance help to increase FDI gap between Malaysia and other host countries; Vietnam and Thailand. Real GDP and real exchange rate helps to increase FDI gap between Indonesia and other host countries; Malaysia, Thailand and Vietnam. Real wage helps to increase FDI gap between Thailand and other host countries; Vietnam, Indonesia and Malaysia. Real exports, real imports and geographic distance help to increase FDI gap between Vietnam and other host countries; Malaysia and Indonesia.