Determinants of Foreign Direct Investment in East Asia: Did China Crowd Out FDI from Her Developing East Asian Neighbours
This paper applies a gravity model to investigate the determinants of foreign direct investment (FDI) in East Asia. We find that economic fundamentals (such as market size, per capita income, and country risk indicators), economic and cultural ties, and information asymmetry are important determinants for FDI. Of the sub-components that measure country risks, we find that both the level and the volatility of exchange rate matter in attracting FDI, as do some institutional quality indicators such as government stability and the degree of corruption in recipient countries. Globally, it appears that inward FDI among high-income OECD economies declined substantially on average over the sample periods under investigation. Meanwhile, inward FDI of the high-income OECD economies in emerging market economies, particularly those in Latin America and Asia, gained substantially relative to their economic fundamentals. Our empirical results indicate that the ASEAN-4 (Indonesia, Malaysia, the Philippines, and Thailand) received above-average inward FDI from the high-income OECD economies, even over the period of the 1997-98 Asian financial crisis, after controlling for their economic fundamentals. By contrast, China¡¦s FDI from the high-income OECD economies was below-average relative to its economic fundamentals. Thus, it is difficult to establish that China has crowded out FDI from her developing ASEAN neighbours. Both Hong Kong and Singapore have received more FDI on average from the European Union (EU), the US, and Japan. The FDI from these three economies in ASEAN-5 (Singapore plus ASEAN-4) was above the average over the sample periods studied. In contrast, only Japan invested more than the average in Greater China (Mainland China plus Hong Kong) in the 1990s. However, this was not the case for either the EU or the US.
|Date of creation:||Nov 2006|
|Contact details of provider:|| Postal: 55th Floor, Two International Finance Centre, 8 Finance Street, Central|
Web page: http://www.info.gov.hk/hkma/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:hkg:wpaper:0617. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Simon Chan)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.