The Effect of Foreign Direct Investment (FDI) to the Economic Growth of ASEAN Member States

Abstract

This study analyzed the effect of foreign direct investment on the economic growth of 10 ASEAN member states from 1999-2021. Specifically, it determined if the foreign direct investment inflows of ASEAN member states have a significant positive or negative relationship to their economic growth, as represented by their gross domestic product per capita. It analyzed which economies in the ASEAN region benefit more from having increased foreign investments to identify if there are patterns of results presented by the ASEAN member states with disparate levels of foreign investments and development. Recommendations were drawn from the results from the secondary data acquired from World Bank and the statistical analysis through multiple regression analysis.

Using multiple regression analysis from the 1999-2021 data, it was concluded that foreign direct investment significantly and positively impacts the gross domestic product of ASEAN member states. This implies that the increase in foreign direct investment will result in an increase in their economic growth as well. The ASEAN member states were divided into high and low foreign direct investments, wherein Indonesia, Malaysia, Singapore, Thailand, and Vietnam belong to those with high investments, while Brunei, Cambodia, Lao, Myanmar, and the Philippines belong to those with low investments. In analyzing which economies benefit more from having increased foreign investments, ASEAN member countries were grouped into high and low foreign direct investments. Through multiple regression analysis, it was concluded that as both countries with high and low foreign direct investments increase, their economic growth also increases. However, ASEAN member states with high foreign direct investments increase more than those with low investments. Specifically, as economic growth increases, countries with high foreign direct investment increase by 3.5507 units, but in countries with low foreign direct investment, it only increases by 0.0002. This implies that countries with high foreign direct investment improve more than those with low foreign direct investment.

ASEAN member states with high and low foreign direct investment were qualitatively analyzed in terms of their foreign direct investment strategies, infrastructure, and geography. It was concluded that countries with high foreign investment have fixed and better strategies with reduced tariffs and barriers to trade, compared to those with low investments that are full of bureaucracy and corruption that impede foreign investment. In terms of infrastructure, ASEAN countries with high foreign investment tend to have advanced infrastructure that makes it efficient for foreign businesses to thrive. Lastly, in terms of geography, ASEAN member states with high foreign investment have efficient connectivity to several countries worldwide.

In policymaking, foreign direct investment is an essential factor for ASEAN member states to consider in improving their economic growth in the future. As a deciding body, ASEAN could implement regional and national-specific policies that would promote both intra and extra-ASEAN investments.