The determinants of foreign direct investment in ASEAN: New evidence from financial integration factor

Abstract

This paper examines the impact of financial integration and other variables on foreign direct investment capital inflows in ASEAN3 (Cambodia, Laos, and Vietnam) and ASEAN5 (Indonesia, Malaysia, Philippines, Thailand, Singapore). Other variables are the gross domestic product, interest rate, infrastructure facility, labor cost, and trade openness. This paper uses the panel ordinary least square estimation with the method of first differencing for the period between 1996 and 2016. The authors divide ASEAN member countries into two groups by the level of economic development. The findings indicate that the coefficient of financial integration is positive and significant at 1 % level of significance on foreign direct investment capital inflows. The empirical results also support the hypothesis that foreign direct investment in ASEAN is positively correlated to market size, infrastructure facilities, and negatively correlated to labor cost as well as trade openness in ASEAN3.