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ASEAN Economic Integration through Trade and Foreign Direct Investment: Long-Term Challenges

Author

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  • Kawai, Masahiro

    (Asian Development Bank Institute)

  • Naknoi, Kanda

    (Asian Development Bank Institute)

Abstract

This paper explores the long-term challenges for trade and foreign direct investment (FDI) of the Association of Southeast Asian Nations (ASEAN). The region has emerged as an important production base for multinational corporations by joining East Asia’s supply chains. While proceeding to establish the ASEAN Economic Community (AEC) by the end of 2015, ASEAN has also forged five major free trade agreements (FTAs) with its dialogue partners (People’s Republic of China, India, Japan, Republic of Korea, and Australia–New Zealand) and is currently negotiating the Regional Comprehensive Economic Partnership (RCEP). In addition, four ASEAN member states are working on the Trans-Pacific Partnership (TPP) negotiations. Econometric evidence suggests that (i) trade flows and inward FDI mutually reinforce each other, i.e., an increase in trade flows stimulates inward FDI and vice versa; (ii) a larger market attracts more inward FDI; (iii) FTAs tend to help stimulate inward FDI; and (iv) strong institutions, good physical infrastructure, and low costs of doing business are critical in boosting inward FDI. The paper concludes that in the long run ASEAN should aim to further integrate itself with the rest of Asia and the world (through a Free Trade Area of the Asia-Pacific and an Asia–Europe FTA), while substantially deepening its internal integration (by moving from the AEC to a customs and economic union) and thereby maintaining ASEAN centrality.

Suggested Citation

  • Kawai, Masahiro & Naknoi, Kanda, 2015. "ASEAN Economic Integration through Trade and Foreign Direct Investment: Long-Term Challenges," ADBI Working Papers 545, Asian Development Bank Institute.
    • Handle: RePEc:ris:adbiwp:0545
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    References listed on IDEAS

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    Cited by:

    1. Sigit Setiawan, 2017. "Trade Liberalization, Consumption, and Real Exchange Rate in Seven ASEAN+6 Countries," Journal of Economics and Behavioral Studies, AMH International, vol. 9(4), pages 73-86.
    2. Ma, Shengnan, 2022. "Growth effects of economic integration: New evidence from the Belt and Road Initiative," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 753-767.
    3. Dong Phong Nguyen & Xuan Vinh Vo, 2017. "Determinants of bilateral trade: evidence from ASEAN+3," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 31(2), pages 115-122, November.
    4. W.M. Muli & J.O. Aduda, 2017. "The Mediating Effect of Ease of Doing Business on the Relationship between Economic Integration and Foreign Direct Investment in the East African Community," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 6(4), pages 1-2.

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    More about this item

    Keywords

    ASEAN; economic integration; foreign direct investment;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F18 - International Economics - - Trade - - - Trade and Environment

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