FDI inflows spillover effect implications on the Asian-Pacific's catching up process

This paper examines the influence of Foreign Direct Investment (FDI) inflows on the catching up process developed by physical capital, labour, human capital, absorptive capacity, and telecommunications investment on 11 selected Asian-Pacific's sustainable productivity growth, includes (ASEAN 5 (Indonesia, Malaysia, Philippines, Singapore, and Thailand), plus China, India, Korea, Japan, Australia and New Zealand). A time serious data for the period of 1970 to 2012 was applied to the modified extensive growth theory model that is based on output approach. Both growth accounting and econometric approaches were used in estimating the parameters of variables and calculating the productivity indicators to fill the gaps in both approaches. This study contributes to the body of knowledge by filling the gaps of both growth accounting and econometric approaches through two steps implemented to estimate the data and calculate the productivity indicators. Moreover, new factors of production those were not included in past studies such as absorptive capacity and telecommunications investment as indicators of digital technology investment alongside the FDI and traditional factors of production were included in this study. The results show that the FDI inflows and inputs used are input driven that was generally more prevalent than total factor productivity (TFP) growth driven in most Asian countries under study that are highly dependent on FDI inflows and human capital development to catch up their economic growth. This indicates that the FDI spillover effects (absorptive capacity) had insignificant impact on some of these economies. However, among East Asian countries, Japan; South Korea and China showed technology transfer or what so called FDI spillover effects. This paper showed that human capital provides the potential effects of FDI spillover to enhance the economic growth catch up. Meanwhile, the contribution of human capital offers the strongest evidence in influencing GDP and catching up process, Asiapacific.