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FDI Flow Volatility and ASEAN Members: An Exploratory Approach

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  • James P. Gander
  • Steve Reynolds
  • Richard Fowles

Abstract

The volatility of Foreign Direct Investment (FDI) flows, particularly those into ASEAN countries is well known. Still researchers will continue to use regression approaches to analyze this volatility. This paper is an exploratory approach to analyzing the behavior of FDI with no attempt to design a complete regression model. Our approach is probabilistic in that we treat the FDI flows from home or source country to various members of ASEAN as random independent events over the time period 1999-2003 and over ISIC manufacturing sectors. We then show how closely the random plots of FDI fit two common cumulative distribution functions (CDF), the Gumbel and the Weibull and whether the plots are from multi-regimes or not. A brief econometric analysis shows FDI volatility within the ISIC industrial sectors. The essential thesis (or hypothesis) is that if capital markets are in a general equilibrium across hosts, home, industrial sectors, and time, then the return on capital (the marginal efficiency of capital) is equalized everywhere, and a home investors dollar will be randomly allocated across hosts, industrial sectors, and time.

Suggested Citation

  • James P. Gander & Steve Reynolds & Richard Fowles, 2010. "FDI Flow Volatility and ASEAN Members: An Exploratory Approach," Working Paper Series, Department of Economics, University of Utah 2010_01, University of Utah, Department of Economics.
    • Handle: RePEc:uta:papers:2010_01
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    References listed on IDEAS

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    1. Sylvia Gottschalk & Stephen Hall, 2008. "Foreign direct investment and exchange rate uncertainty in South-East Asia," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(4), pages 349-359.
    2. Michael G. PLUMMER & David CHEONG, 2009. "Fdi Effects Of Asean Integration," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 29, pages 49-67.
    3. James P. Gander, 2009. "Extreme Value Theory and the Financial Crisis of 2008," Working Paper Series, Department of Economics, University of Utah 2009_03, University of Utah, Department of Economics.
    4. Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters, in: Anastasios G Malliaris & William T Ziemba (ed.), THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Lim, King Yoong, 2019. "Industrial Transformation With Heterogeneous Labor And Foreign Experts," Macroeconomic Dynamics, Cambridge University Press, vol. 23(8), pages 3225-3266, December.

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    Keywords

    Foreign Direct Investment; Flow Volatility;

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