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ASEAN’s TRADE AND FOREIGN DIRECT INVESTMENT: LONG-TERM CHALLENGES FOR ECONOMIC INTEGRATION

Author

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  • MASAHIRO KAWAI

    (Graduate School of Public Policy, University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo 113-0033, Japan)

  • KANDA NAKNOI

    (#x2020;Department of Economics, University of Conneticut, 365 Fairfield Way, U-1063 Storrs, CT 06269-1063, USA)

Abstract

This paper explores the long-term challenges for economic integration of the Association of Southeast Asian Nations (ASEAN) through trade and foreign direct investment (FDI). The region has emerged as an important production base for global multinational corporations by joining East Asia’s supply chains. While proceeding to establish the ASEAN Economic Community (AEC) by the end of 2015, ASEAN has also forged five major free trade agreements (FTAs) with its dialogue partners (China, India, Japan, Republic of Korea, and Australia–New Zealand) and is currently negotiating the Regional Comprehensive Economic Partnership. In addition, four ASEAN member states have completed Trans-Pacific Partnership negotiations. Econometric evidence suggests that (i) trade flows and inward FDI mutually reinforce each other, i.e., an increase in trade flows stimulates inward FDI and vice versa; (ii) a larger market tends to attract more inward FDI; (iii) FTAs tend to help stimulate inward FDI; and (iv) strong institutions, good physical infrastructure, and low costs of doing business are critical in boosting inward FDI. The paper suggests that in the long run it is ASEAN’s interest to further integrate itself with the rest of Asia and the world (through a Free Trade Area of the Asia-Pacific and an Asia–Europe FTA), while substantially deepening its internal integration (by moving from the AEC to a customs and economic union) and thereby maintaining ASEAN centrality.

Suggested Citation

  • Masahiro Kawai & Kanda Naknoi, 2017. "ASEAN’s TRADE AND FOREIGN DIRECT INVESTMENT: LONG-TERM CHALLENGES FOR ECONOMIC INTEGRATION," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(03), pages 643-680, June.
    • Handle: RePEc:wsi:serxxx:v:62:y:2017:i:03:n:s0217590818400040
    DOI: 10.1142/S0217590818400040
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    References listed on IDEAS

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    2. Zadia M. Feliciano & Nadia Doytch, 2020. "Trade Liberalization And Firm Performance: The Case Of Thailand," Contemporary Economic Policy, Western Economic Association International, vol. 38(4), pages 607-621, October.

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