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Political stability and foreign direct investment inflows in 25 Asia-Pacific countries: the moderating role of trade openness

Author

Listed:
  • Ai Ngoc Nhan Le

    (Faculty of Finance and Banking, Van Lang University)

  • Ha Pham

    (Faculty of Finance and Banking, Ho Chi Minh City Open University)

  • Dung Thi Ngoc Pham

    (Faculty of Finance and Banking, Ton Duc Thang University)

  • Khoa Dang Duong

    (Faculty of Finance and Banking, Ton Duc Thang University)

Abstract

This article analyzes how trade openness and political stability affect foreign direct investment (FDI) in 25 Asia-Pacific countries from 1990 to 2020. This study employs the dynamic system Generalized Method of Moments to mitigate the heteroskedasticity and autocorrelation issues. We also perform the Johnson–Neyman test to examine whether trade openness moderates the relationship between political stability and FDI. Our findings show that trade openness positively affects FDI, while political stability has a negative effect. Noticeably, the Johnson–Neyman test indicates that Trade Openness moderates the relationship between political stability and FDI in Asia-Pacific nations. Trade openness and its moderating role remained robust before the 2008 financial crisis. The impacts of trade openness and political stability on FDI persist in non-tax-heaven countries. Our findings align with market-seeking, efficiency, resource-seeking, and regulatory risk theories. Finally, these findings are helpful for policymakers to attract FDI projects sustainably across the Asia-Pacific region.

Suggested Citation

  • Ai Ngoc Nhan Le & Ha Pham & Dung Thi Ngoc Pham & Khoa Dang Duong, 2023. "Political stability and foreign direct investment inflows in 25 Asia-Pacific countries: the moderating role of trade openness," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-9, December.
    • Handle: RePEc:pal:palcom:v:10:y:2023:i:1:d:10.1057_s41599-023-02075-1
    DOI: 10.1057/s41599-023-02075-1
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