IDEAS home Printed from https://ideas.repec.org/a/pal/palcom/v10y2023i1d10.1057_s41599-023-02075-1.html
   My bibliography  Save this article

Political stability and foreign direct investment inflows in 25 Asia-Pacific countries: the moderating role of trade openness

Author

Listed:
  • Ai Ngoc Nhan Le

    (Faculty of Finance and Banking, Van Lang University)

  • Ha Pham

    (Faculty of Finance and Banking, Ho Chi Minh City Open University)

  • Dung Thi Ngoc Pham

    (Faculty of Finance and Banking, Ton Duc Thang University)

  • Khoa Dang Duong

    (Faculty of Finance and Banking, Ton Duc Thang University)

Abstract

This article analyzes how trade openness and political stability affect foreign direct investment (FDI) in 25 Asia-Pacific countries from 1990 to 2020. This study employs the dynamic system Generalized Method of Moments to mitigate the heteroskedasticity and autocorrelation issues. We also perform the Johnson–Neyman test to examine whether trade openness moderates the relationship between political stability and FDI. Our findings show that trade openness positively affects FDI, while political stability has a negative effect. Noticeably, the Johnson–Neyman test indicates that Trade Openness moderates the relationship between political stability and FDI in Asia-Pacific nations. Trade openness and its moderating role remained robust before the 2008 financial crisis. The impacts of trade openness and political stability on FDI persist in non-tax-heaven countries. Our findings align with market-seeking, efficiency, resource-seeking, and regulatory risk theories. Finally, these findings are helpful for policymakers to attract FDI projects sustainably across the Asia-Pacific region.

Suggested Citation

  • Ai Ngoc Nhan Le & Ha Pham & Dung Thi Ngoc Pham & Khoa Dang Duong, 2023. "Political stability and foreign direct investment inflows in 25 Asia-Pacific countries: the moderating role of trade openness," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-9, December.
    • Handle: RePEc:pal:palcom:v:10:y:2023:i:1:d:10.1057_s41599-023-02075-1
    DOI: 10.1057/s41599-023-02075-1
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/s41599-023-02075-1
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1057/s41599-023-02075-1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Deseatnicov, Ivan & Akiba, Hiroya, 2016. "Exchange rate, political environment and FDI decision," International Economics, Elsevier, vol. 148(C), pages 16-30.
    2. Busse, Matthias & Hefeker, Carsten, 2007. "Political risk, institutions and foreign direct investment," European Journal of Political Economy, Elsevier, vol. 23(2), pages 397-415, June.
    3. Mamunur Rashid & Xuan Hui Looi & Shao Jye Wong, 2017. "Political stability and FDI in the most competitive Asia Pacific countries," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 9(02), pages 140-155, May.
    4. Chenaf-Nicet, Dalila & Rougier, Eric, 2016. "The effect of macroeconomic instability on FDI flows: A gravity estimation of the impact of regional integration in the case of Euro-Mediterranean agreements," International Economics, Elsevier, vol. 145(C), pages 66-91.
    5. Horas Djulius, 2017. "Energy Use, Trade Openness, and Exchange Rate Impact on Foreign Direct Investment in Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 7(5), pages 166-170.
    6. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    7. Kinuthia, Bethuel Kinyanjui & Murshed, Syed Mansoob, 2015. "FDI determinants: Kenya and Malaysia compared," Journal of Policy Modeling, Elsevier, vol. 37(2), pages 388-400.
    8. Jones, Chris & Temouri, Yama, 2016. "The determinants of tax haven FDI," Journal of World Business, Elsevier, vol. 51(2), pages 237-250.
    9. Petar Kurecic & Filip Kokotovic, 2017. "The Relevance of Political Stability on FDI: A VAR Analysis and ARDL Models for Selected Small, Developed, and Instability Threatened Economies," Economies, MDPI, vol. 5(3), pages 1-21, June.
    10. Samina Sabir & Anum Rafique & Kamran Abbas, 2019. "Institutions and FDI: evidence from developed and developing countries," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-20, December.
    11. Hong, Qing & Smart, Michael, 2010. "In praise of tax havens: International tax planning and foreign direct investment," European Economic Review, Elsevier, vol. 54(1), pages 82-95, January.
    12. Niti Bhasin & Shilpa Garg, 2020. "Impact of Institutional Environment on Inward FDI: A Case of Select Emerging Market Economies," Global Business Review, International Management Institute, vol. 21(5), pages 1279-1301, October.
    13. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
    14. Zühal Kurul & A. Yasemin Yalta, 2017. "Relationship between Institutional Factors and FDI Flows in Developing Countries: New Evidence from Dynamic Panel Estimation," Economies, MDPI, vol. 5(2), pages 1-10, May.
    15. Dorota Ciesielska-Maciagowska & Marcin Koltuniak, 2021. "Foreign Direct Investments and Home Country’s Institutions: The Case of CEE Countries," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 335-353.
    16. Mariotti, Sergio & Marzano, Riccardo, 2021. "The effects of competition policy, regulatory quality and trust on inward FDI in host countries," International Business Review, Elsevier, vol. 30(6).
    17. D. Tripati Rao & Narayan Sethi & Devi Prasad Dash & Padmaja Bhujabal, 2023. "Foreign Aid, FDI and Economic Growth in South-East Asia and South Asia," Global Business Review, International Management Institute, vol. 24(1), pages 31-47, February.
    18. Liying He & Kamisah Ismail, 2023. "Do staff capacity and performance-based budgeting improve organisational performance? Empirical evidence from Chinese public universities," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-16, December.
    19. Eman Elish, 2022. "Political and productive capacity characteristics as outward foreign direct investment push factors from BRICS countries," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-10, December.
    20. Ricardo E. Buitrago R. & María Inés Barbosa Camargo, 2020. "Home Country Institutions and Outward FDI: An Exploratory Analysis in Emerging Economies," Sustainability, MDPI, vol. 12(23), pages 1-20, November.
    21. Gnangnon, Sèna Kimm, 2018. "Effect of multilateral trade liberalization on foreign direct investment outflows amid structural economic vulnerability in developing countries," Research in International Business and Finance, Elsevier, vol. 45(C), pages 15-29.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Niaz Morshed & Mohammad Razib Hossain, 2022. "Causality analysis of the determinants of FDI in Bangladesh: fresh evidence from VAR, VECM and Granger causality approach," SN Business & Economics, Springer, vol. 2(7), pages 1-28, July.
    2. Omer Ali Ibrahim & Sonal Devesh & Mughees Shaukat, 2022. "Institutional determinants of FDI in Oman: Causality analysis framework," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4183-4195, October.
    3. Bersan Haliti & Safet Merovci, 2020. "The Impact of the Investment Environment on Foreign Direct Investment (FDI) in the European Transition Economies," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 1, pages 138-147, March.
    4. Abban, Stanley, 2020. "The impact of institutions and infrastructure on intra-regional trade: The Economic Community of West African States," MPRA Paper 104382, University Library of Munich, Germany.
    5. Pierre-Guillaume Méon & Khalid Sekkat, 2007. "Revisiting the relationship between governance and foreign direct investment," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 50(1), pages 41-61.
    6. Komlan Fiodendji & Kodjo Evlo, 2015. "Do Institutions Quality Affect FDI Inflows in Sub-Saharan African Countries?," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 5(1), pages 1-8.
    7. Ștefan Cristian Gherghina & Liliana Nicoleta Simionescu & Oana Simona Hudea, 2019. "Exploring Foreign Direct Investment–Economic Growth Nexus—Empirical Evidence from Central and Eastern European Countries," Sustainability, MDPI, vol. 11(19), pages 1-33, September.
    8. Andreia Olival, 2012. "The influence of Doing Business’ institutional variables in Foreign Direct Investment," GEE Papers 0048, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Dec 2012.
    9. Fathi Ali & Norbert Fiess & Ronald MacDonald, 2010. "Do Institutions Matter for Foreign Direct Investment?," Open Economies Review, Springer, vol. 21(2), pages 201-219, April.
    10. Polyxeni Kechagia & Theodore Metaxas, 2022. "FDI and Institutions in BRIC and CIVETS Countries: An Empirical Investigation," Economies, MDPI, vol. 10(4), pages 1-23, March.
    11. Tuğba Akın, 2019. "The Effects of Political Stability on Foreign Direct Investment in Fragile Five Countries," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 11(4), pages 237-255, December.
    12. Tag, Mehmet Nasih, 2021. "Judicial institutions of property rights protection and foreign direct investment inflows," International Review of Law and Economics, Elsevier, vol. 65(C).
    13. Lin, Leming & Mihov, Atanas & Sanz, Leandro & Stoyanova, Detelina, 2019. "Property rights institutions, foreign investment, and the valuation of multinational firms," Journal of Financial Economics, Elsevier, vol. 134(1), pages 214-235.
    14. Chunyang Pan & William X. Wei & Etayankara Muralidharan & Jia Liao & Bernadette Andreosso-O’Callaghan, 2020. "Does China’s Outward Direct Investment Improve the Institutional Quality of the Belt and Road Countries?," Sustainability, MDPI, vol. 12(1), pages 1-21, January.
    15. Baiashvili, Tamar & Gattini, Luca, 2020. "Impact of FDI on economic growth: The role of country income levels and institutional strength," EIB Working Papers 2020/02, European Investment Bank (EIB).
    16. Sushil K. Rai & Akhilesh K. Sharma, 2020. "Causal Nexus Between FDI Inflows and Its Determinants in SAARC Countries," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 21(2), pages 193-215, September.
    17. Okafor, Luke Emeka & Hassan, M. Kabir & Rashid, Mamunur & Prabu, Darniya & Sabit, Ahmed, 2022. "Risk dimensions, risk clusters, and foreign direct investments in developing countries," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 636-649.
    18. Nvuh‐Njoya Youssouf & Keneck‐Massil Joseph & Yogo Urbain Thierry, 2024. "Constitutional instability and foreign direct investment in Africa," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(1), pages 3-23, January.
    19. Azzimonti, Marina, 2019. "Does partisan conflict deter FDI inflows to the US?," Journal of International Economics, Elsevier, vol. 120(C), pages 162-178.
    20. Federico Carril-Caccia & Juliette Milgram-Baleix & Jordi Paniagua, 2019. "Foreign Direct Investment in oil-abundant countries: The role of institutions," PLOS ONE, Public Library of Science, vol. 14(4), pages 1-23, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:palcom:v:10:y:2023:i:1:d:10.1057_s41599-023-02075-1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: https://www.nature.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.