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What drives bilateral foreign direct investment among Asian economies?

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  • Nguyen, Anh T.N.
  • Haug, Alfred A.
  • Owen, P. Dorian
  • Genç, Murat

Abstract

This study analyses the role of knowledge transfers via bilateral foreign direct investment (FDI) among 31 Asian economies. We make three distinct contributions to the literature on the drivers of FDI by: (1) applying the knowledge-capital model to FDI among Asian economies for the first time, using a comprehensive data set, and comparing it to an empirical gravity-type model of FDI; (2) conducting model selection tests to choose between alternative empirical specifications and estimation methods; and (3) modelling both the FDI participation decision and the decision on the amount of FDI. The main findings are: (1) while vertical FDI, driven by seeking low-cost unskilled labour, appears to be the dominant type of intra-Asian FDI, overall the knowledge-capital model is not supported by the data; and (2) conventional gravity variables (e.g., size, distance, common language) provide a better explanation of intra-Asian FDI and, therefore, a more suitable vehicle for future research.

Suggested Citation

  • Nguyen, Anh T.N. & Haug, Alfred A. & Owen, P. Dorian & Genç, Murat, 2020. "What drives bilateral foreign direct investment among Asian economies?," Economic Modelling, Elsevier, vol. 93(C), pages 125-141.
    • Handle: RePEc:eee:ecmode:v:93:y:2020:i:c:p:125-141
    DOI: 10.1016/j.econmod.2020.08.003
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    5. Nathapornpan Piyaareekul Uttama, 2021. "International Investment Agreements Provisions and Foreign Direct Investment Flows in the Regional Comprehensive Economic Partnership Region," Economies, MDPI, vol. 9(1), pages 1-23, March.
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    7. Paniagua, Jordi & Peiró-Palomino, Jesús & Santana-Gallego, María, 2022. "Does happiness drive tourism decisions?," Economic Modelling, Elsevier, vol. 111(C).
    8. Nathapornpan Uttama & Popkarn Arwatchanakarn, 2023. "How do economic complexity and productive capacities foster foreign direct investment flows? Evidence from the Asian economies," Economics Bulletin, AccessEcon, vol. 43(1), pages 629-643.
    9. Sandeep Kaur & Pushp Kumar & Mohd Arshad Ansari, 2024. "An analysis of Indian FDI inflows through an augmented gravity model: exploring new insights," International Economics and Economic Policy, Springer, vol. 21(2), pages 435-455, May.
    10. Hock Tsen Wong, 2022. "Asymmetric Real Exchange Rate and Foreign Direct Investment Determinants: An Empirical Study of Malaysia," Capital Markets Review, Malaysian Finance Association, vol. 30(2), pages 19-37.

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    More about this item

    Keywords

    Intra-asian bilateral FDI; Knowledge-capital model; Gravity model; Corner solution outcomes; Zero values; Skill differences; PPML; Lognormal hurdle;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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