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Drivers of Foreign Direct Investment Inflows to Emerging Asian Economies

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  • Pami Dua
  • Neha Verma

Abstract

This article examines the role of domestic and global factors in driving foreign direct investment (FDI) inflows to Asian emerging economies. Conventional panel estimations do not adequately account for the interdependence among countries caused by common global shocks and spatial effects. This article, employing a novel technique, augments the panel cointegration estimations with a proxy for unobserved common factors extracted from the augmented mean group regression. Our estimations control for nonstationarity, endogeneity, cross-sectional dependence, and heterogeneity. Based on the data of six Asian emerging economies from 2000Q1 to 2019Q4, we find a significant impact of both push (global) and pull (domestic) factors in attracting FDI. Our policy implication suggests the sequential opening of the capital account with capital controls and macroprudential regulations in place. JEL Codes: F21, F30, F41

Suggested Citation

  • Pami Dua & Neha Verma, 2024. "Drivers of Foreign Direct Investment Inflows to Emerging Asian Economies," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 23(1), pages 83-107, March.
    • Handle: RePEc:sae:emffin:v:23:y:2024:i:1:p:83-107
    DOI: 10.1177/09726527231196722
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    More about this item

    Keywords

    International capital flows; FDI; cross-sectional dependence; emerging markets; group-mean FMOLS;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F30 - International Economics - - International Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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