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Determinants of Intra-FDI Inflows in East Asia : Does Regional Economic Integration Affect Intra-FDI?

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  • Jung Sik Kim

    (Yongsei University of Korea, KIEP)

  • Yonghyup Oh

Abstract

This paper analyzes the validity of macroeconomic variables, such as exchange rate uncertainty, macroeconomic instability, and openness, in determining intra-FDI inflows in the ASEAN countries, China, Japan, and Korea. Our empirical results show that openness, exchange rates, exchange rate volatility, per capita GDP, and foreign reserve accumulation are statistically significant factors that determine regional intra-FDI inflows; other variables such as macroeconomic instability are not significant. Variables like openness and exchange rate volatility have direct implications for regional FTAs and regional common currency arrangements, and thus to East Asian economic integration. Our findings suggest that a regional FTA that would increase regional openness by 10 percent would increase intra-FDI inflows by almost 2 percent. A regional exchange rate arrangement that would reduce regional exchange volatility by half would increase intra-FDI inflows by around 10 percent.

Suggested Citation

  • Jung Sik Kim & Yonghyup Oh, 2007. "Determinants of Intra-FDI Inflows in East Asia : Does Regional Economic Integration Affect Intra-FDI?," Trade Working Papers 21906, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:tradew:21906
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    References listed on IDEAS

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    Cited by:

    1. Yunling Zhang & Rongyan Wang, 2014. "The role of foreign direct investment flows and a possible multilateral agreement," Chapters, in: Richard Baldwin & Masahiro Kawai & Ganeshan Wignaraja (ed.), A World Trade Organization for the 21st Century, chapter 13, pages 403-420, Edward Elgar Publishing.
    2. Richard Baldwin & Masahiro Kawai & Ganeshan Wignaraja (ed.), 2014. "A World Trade Organization for the 21st Century," Books, Edward Elgar Publishing, number 15991.

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    More about this item

    Keywords

    FDI; openness; Exchange Rate Uncertainty; exchange rate; Regional Economic Integration;
    All these keywords.

    JEL classification:

    • 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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