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Do Economic Growth and Institutional Quality Affect Foreign Direct Investment Inflow?

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  • , samok66696@rustetic.com

Abstract

Foreign Direct Investment (FDI) inflows play a crucial role in the ASEAN (Association of Southeast Asian Nations) region's economic growth, as they contribute capital, technology, managerial expertise, and enhance economic integration among member states. However, FDI distribution across ASEAN countries is uneven, with larger and more open markets receiving a larger share, while smaller or less developed countries attract less investment. This research aims to identify the determinants of FDI inflows in the ASEAN-10 region from 2010 to 2021. A quantitative approach is employed, utilizing panel data regression analysis. The models tested include the Common Effect Model (CEM), Fixed Effect Model (FEM), and Random Effect Model (REM), with the FEM selected as the most appropriate. The results of the partial test reveal that economic growth and regulatory quality positively influence FDI inflows in ASEAN-10, while the Voice and Accountability indicator has a negative effect. Conversely, political stability, government effectiveness, rule of law, and control of corruption do not significantly impact FDI inflows. Overall, these variables account for approximately 87.20% of the variance in FDI flows in the region. The findings suggest that ASEAN countries should formulate more effective policies to attract FDI, particularly by implementing sound economic strategies, enhancing institutional quality, improving the investment climate, and boosting global competitiveness.

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  • , samok66696@rustetic.com, 2024. "Do Economic Growth and Institutional Quality Affect Foreign Direct Investment Inflow?," OSF Preprints 7ge9z, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:7ge9z
    DOI: 10.31219/osf.io/7ge9z
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