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Determinants of foreign direct investment and volatility in South East Asian economies

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  • Krishna Vadlamannati
  • Artur Tamazian
  • Lokanandha Irala

Abstract

The objective of this paper is to identify and examine the determinants of barriers to foreign direct investment (FDI) in South East Asian economies. Based on our theoretical groundings, we identify potential barriers under four categories, namely macroeconomic policy factors, political factors, institutional factors and socioeconomic factors. Using cross-sectional time-series data for 17 South East Asian economies from 1996 to 2005, we test these set of barriers against per capita FDI inflows and volatility in FDI inflows using fixed effects pooled regression analysis. In the process, we also check as to how fragile our results are to the small but important changes, which we bring in the conditioning information set using robustness check. Our empirical evidence suggests that all the possible set of barriers identified have significant negative effect on per capita FDI and positive impact on volatility in FDI inflows. We therefore suggest that there is an urgent need to find the solutions to break these barriers that are acting as stumbling blocks in attracting FDI of their actual potential.

Suggested Citation

  • Krishna Vadlamannati & Artur Tamazian & Lokanandha Irala, 2009. "Determinants of foreign direct investment and volatility in South East Asian economies," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 14(3), pages 246-261.
    • Handle: RePEc:taf:rjapxx:v:14:y:2009:i:3:p:246-261
    DOI: 10.1080/13547860902975010
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    References listed on IDEAS

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    1. Yuko Kinoshita & Nauro F. Campos, 2003. "Why Does Fdi Go Where it Goes? New Evidence From the Transition Economies," IMF Working Papers 2003/228, International Monetary Fund.
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    Cited by:

    1. Thi Mai Hoai Bui & Xuan Vinh Vo & Duy Tung Bui, 2018. "Gender inequality and FDI: empirical evidence from developing Asia–Pacific countries," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 8(3), pages 393-416, December.
    2. Ranajit Bairagi, 2017. "Impact of foreign direct investment volatility on economic development in the Indian subcontinent," The World Economy, Wiley Blackwell, vol. 40(12), pages 2832-2853, December.
    3. Avom Désiré & Melingui bate Adalbert Abraham Ghislain, 2020. "The effect of information and communication technologies on foreign direct investments attractiveness in Africa," Economics Bulletin, AccessEcon, vol. 40(3), pages 2304-2319.
    4. Bruno Emmanuel Ongo Nkoa & Jacques Simon Song, 2017. "Analyse des effets de la qualité des institutions sur la volatilité des Investissements Directs Etrangers en Afrique," African Development Review, African Development Bank, vol. 29(4), pages 674-688, December.
    5. Niti Bhasin & Shilpa Garg, 2018. "Does Host Country Institutional Quality Act as a Differentiator in Intra-regional FDI? Evidence from Selected Asian Economies," Foreign Trade Review, , vol. 53(2), pages 81-97, May.
    6. Patrycja Chodnicka & Renata Karkowska & Malgorzata Olszak (ed.), 2014. "Towards contemporary issues in the financial system," Book, University of Warsaw, Faculty of Management, number 07, June.
    7. Asaduzzaman, Md, 2019. "FDI as an Opportunity for Economic growth of Bangladesh: A VECM Analysis," MPRA Paper 110328, University Library of Munich, Germany, revised 05 Dec 2019.
    8. Rudra Prakash Pradhan, 2010. "Financial Deepening, Foreign Direct Investment and Economic Growth: Are They Cointegrated," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 1(1), pages 37-43, December.
    9. Preeti Flora & Gaurav Agrawal, 2015. "A Co-integration and Causality Analysis of Highest FDI Recipient Asian Economies," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 6(4), pages 1078-1089, December.
    10. Niti Bhasin & Shilpa Garg, 2020. "Impact of Institutional Environment on Inward FDI: A Case of Select Emerging Market Economies," Global Business Review, International Management Institute, vol. 21(5), pages 1279-1301, October.

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