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Understanding Foreign Direct Investment in East Asia

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  • Willem Thorbecke

    (Asian Development Bank Institute (ADBI))

  • Nimesh Salike

Abstract

We recount East Asia’s experience with foreign direct investment (FDI). We document that, contrary to the Rybczynski theorem, capital flows in the region cause the host country’s labor-intensive industry to expand and its capital-intensive industry to decline. We also present narrative evidence that sheds light on how FDI is affected by the host’s country’s locational advantages, whether Asian FDI is footloose, and how the PRC has become the center of Factory Asia. Finally, we show that the evolution of production networks in the region can be explained partly by changes in the service cost of linking geographically separated production blocks relative to the cost saving arising from slicing up the value chain.

Suggested Citation

  • Willem Thorbecke & Nimesh Salike, 2011. "Understanding Foreign Direct Investment in East Asia," Trade Working Papers 23246, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:tradew:23246
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    References listed on IDEAS

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    1. Fukunari Kimura & Ayako Obashi, 2016. "Production Networks in East Asia: What We Know So Far," ADB Institute Series on Development Economics, in: Ganeshan Wignaraja (ed.), Production Networks and Enterprises in East Asia, edition 1, chapter 0, pages 33-64, Springer.
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    10. Theodore H. Moran, 2011. "Foreign Direct Investment and Development: Launching a Second Generation of Policy Research: Avoiding the Mistakes of the First, Reevaluating Policies for Developed and Developing Countries," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6000, April.
    11. John H Dunning, 1988. "The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(1), pages 1-31, March.
    12. ITO Takatoshi & KOIBUCHI Satoshi & SASAKI Yuri & SATO Kiyotaka & SHIMIZU Junko & HAYAKAWA Kazunobu & YOSHIMI Taiyo, 2008. "Currency Invoicing and Foreign Exchange Risk Management: A Case Study of Japanese Firms (Japanese)," Discussion Papers (Japanese) 08009, Research Institute of Economy, Trade and Industry (RIETI).
    13. Wignaraja, Ganeshan, 2008. "FDI and Innovation as Drivers of Export Behaviour: Firm-level Evidence from East Asia," MERIT Working Papers 2008-061, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
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    Cited by:

    1. Kornkarun Cheewatrakoolpong & Chayodom Sabhasri & Nath Bunditwattanawong, 2013. "Impact of the ASEAN Economic Community on ASEAN Production Networks," Trade Working Papers 23393, East Asian Bureau of Economic Research.
    2. Bruno Martorano & Marco Sanfilippo, 2015. "Structural Change and Wage Inequality in the Manufacturing Sector: Long Run Evidence from East Asia," Oxford Development Studies, Taylor & Francis Journals, vol. 43(2), pages 212-231, June.
    3. Dmitry Alexandrovich Izotov, 2012. "The Foreign Trade of Domestic and External Sectors of the Chinese Economy," Spatial Economics=Prostranstvennaya Ekonomika, Economic Research Institute, Far Eastern Branch, Russian Academy of Sciences (Khabarovsk, Russia), issue 4, pages 49-66.
    4. Dmitriy Izotov, 2013. "Zones with China's concessional regime: spatial concentration and foreign trade contribution," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(1), pages 123-132.
    5. Yee-Siong Tong, 2021. "China’S Outbound Investment In Asean Economies In Three Periods: Changing Patterns And Trends," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 66(01), pages 105-142, March.
    6. Biswajit Nag & Biswa Nath Bhattacharyay & Debdeep De, 2015. "Integrating India with Asian Production Networks: Prospects and Challenges," CESifo Working Paper Series 5616, CESifo.
    7. Huang, Yanghua & Salike, Nimesh & Zhong, Feiteng, 2017. "Policy effect on structural change: A case of Chinese intermediate goods trade," China Economic Review, Elsevier, vol. 44(C), pages 30-47.
    8. Gabor Hunya, 2012. "The Role of Multinational Companies in International Business Integration," wiiw Research Reports 384, The Vienna Institute for International Economic Studies, wiiw.
    9. Miao Wang & Hong Zhuang, 2021. "FDI and educational outcomes in developing countries," Empirical Economics, Springer, vol. 61(6), pages 3505-3539, December.

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    More about this item

    Keywords

    foreign direct investment; FDI; East Asia; Asian FDI; global production networks;
    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
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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