The Impact of Intra Regional Trade Agreement on FDI Inflows in Southeast Asia: Case of Indonesia, Malaysia and Thailand

Verico, Kiki (2012): The Impact of Intra Regional Trade Agreement on FDI Inflows in Southeast Asia: Case of Indonesia, Malaysia and Thailand.

Abstract

This study attempts to analyze the impact of intra regional trade agreement on FDI inflows in Southeast Asia. The agreement is ASEAN Free Trade Area (AFTA). The observed countries are Indonesia, Malaysia and Thailand. These three countries have been selected based on several considerations. Trade indicators of Revealed Comparative Advantage (RCA), Constant Market Share Analysis (CMSA) and Net Export (NX) show these three countries have intra trade advantage in primary products. These indicators are useful to assess how effective AFTA in accommodating her member’s trade advantage products into her priority products list. Furthermore this study attempts to assess the impact of AFTA on FDI inflows as a proxy of its effectiveness on investment. This study adopts econometric model of Panel Data Analysis on both the Static Fixed Effects and Dynamic Panel Data (DPD) Analysis to find the impact of AFTA and other variables to FDI inflows.

• Item Type: MPRA Paper
• Language: English
• Keywords: Trade; Neoclassical Models of Trade; Long-Term Capital (FDI inflows); AFTA; Asian Economic Crisis
• Subjects: F - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade; F - International Economics > F1 - Trade; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements

References

ASEAN Secretariat.,1999b. ASEAN Investment Condition: Temporary Exclusion List and Sensitive List. Jakarta: The ASEAN Secretariat.

Balassa, B.,1961. The Theory of Economic Integration. Homewood, IL: Richard D. Irwin.

Balasubramanyam, V.N., D.Sapsford and D. Griffiths.,2002. Regional Integration Agreements and Foreign Direct Investment: Theory and Preliminary Evidence The Manchester School, 70(3), 1463 – 6786, 460-482, June.

Baltagi, B.H., P.Egger, and M. Pfaffermayr., Oct, 2005. Estimating Regional Trade Agreement Effects on FDI in an Interdependent World, Journal of Econometric, 140, 260-281.

Barrell, Ray and Nigel Pain.,May,1996. An Econometric Analysis of U.S. Foreign Direct Investment. The Review of Economics and Statistics, 78 (2), 200-207.

Blanchard, O.,2006. Macroeconomics, (4th ed.). New Jersey: Pearson Prentice Hall.

Choe, J.I.,2003.Do Foreign Direct Investment and Gross Domestic Investment Promote Economic Growth?. Review of Development Economics, 7,44 – 57.

Daitoh, I and A. Kawamura.,2009. Endogenous FDI Policy and External Tariffs in a Free Trade Condition under International Oligopoly. Working Paper. Tohoku University.

De Mello Jr., L.R.,1997. Foreign Direct Investment in Developing Countries and Growth: Selective Survey. The Journal of Development Studies,34 (1),1-34.

___________.,1999. Foreign Direct Investment-led Growth: Evidence from Time Series and Panel Data. Oxford Economic Papers, 51, 133-154.

Donnenfeld, S.,2003. Regional Blocs and Foreign Direct Investment, Review of International Economics, 11(5),770-788.

Dunning, J.H.,1988. Explaining International Production. London: Unwin Hyman Ltd.

Durham, J. Benson.,2004. Absorptive Capacity and the Effects of Foreign Direct Investment and Equity foreign portfolio investment of economic growth. European Economic Review, 48(2),285-306.

Foster, M. J.,Jan.,2000.Evaluating Foreign Direct Investments: New Challenges for Strategic Planners. The Journal of the Operational Article Society, 51(1),45-52.

Gastanaga, V., Nugent, J. B. and Pashamova, B.,1998. Host Country Reforms and FDI Inflows: How Much Difference Do They Make?. Word Development, 26(7),1299-1314.

Gujarati, Damodar. Basic Econometrics,(4th ed.),2003. New York: McGraw-Hill Book Company.

Hejazi, Walid and A. Edward Safarian, 3rd Qtr.,1999. Trade, Foreign Direct Investment, and RandD Spillovers”.Journal of International Business Studies, 30(3), 491-511.

Hejazi, Walid and P. Pauly.,May,2003. Motivations for FDI and Domestic Capital Formation. Journal of International Business Studies, 34(3),282-289.

Hsiao, F.S.T. and Hsiao, M-C.W.,2006. FDI, Exports and GDP in East and Southeast Asia – Panel Data Versus Time-Series Causality Analysis. Journal of Asian Economics. 17, 1082 – 1106.

Huhne, Christopher.,1990. Real World Economics, England: Penguin Group.

Intal,Jr.,P, M.Simorangkir and D.Narjoko.,2010. ASEAN Regional Economic Integration, East Asian Regional Cooperation Forum, 11 July 2010, Beijing.

Ito, Kiyohiko and Elizabeth L. Rose., 3rd Qtr.,2002. Foreign Direct Investment Location Strategies in the Tire Industry. Journal of International Business Studies, 33(3), 593-602.

Jones, R.W. and H.Kierzkowski.,1990. The Role of Services in Production and International Trade: A Theoritical Framework”. In: Jones R.W. and Krueger A.O.,eds. The Political Economy of International Trade: Essays in Honor of R.E.Baldwin: 31-48. Oxford :Basil Blackwell.

Karp, Larry S and Jeffrey M.Perloff.,1988. Dynamic Oligopoly in The Rice Export Market. California: UCLA.

Kindleberger, C. P.,1966. European Integration and the International Corporation, Columbia Journal of World Business, 1, 65-73.

Kiyota,K., and Shujiro Urata.,2004. Exchange Rate, Exchange Rate Volatility and Foreign Direct Investment, The World Economy, 27(10),1501-1536.

Kojima,Kiyoshi.,1978. Direct Foreign Investment: A Japanese Model of Multinational Business Operation. New York: Praeger.

Lin, Ping and Kamal Saggi.,1978. Incentives for Foreign Direct Investment under Imitation. The Canadian Journal of Economics / Revue canadienne d'Economique, 32 (5), 1275-1298.

Lim, L.Y.C.,1994. The Role of the Private Sector in ASEAN Regional Economic Cooperation, in Lynn K.Mytelka (ed.), South-South Cooperation in a Global Perspective, Paris: Organization for Economic Cooperation and Development, pp.125-68.

Majeed and Ahmad.,2007. Exports and FDI in Developing Countries: Subtitutes or Compliments? Paper presented at the International Conference of The Impact of FDI on Growth and Employment in the New EU Member States, 5-6 October 2007, Cluj-Napoca, Romania.

MacDermott, R.,2006. Regional Trade Agreement and Foreign Direct Investment, North American Journal of Economics and Finance, 18, 107-116.

Motta, Massimo and George Norman.,Nov,1996. Does Economic Integration Cause Foreign Direct Investment?. International Economic Review, 37(4), 757-783.

Mottaleb, K.A.,2007.Determinants of Foreign Direct Investment and Its Impact on Economic Growth in Developing Countries. Munich Personal RePEc Archive (MPRA) Paper, No. 9457.

Nesadurai, H.E.S.,2003. Globalization, Domestic Politics and Regionalism: the ASEAN Free Trade Condition. Routledge: London and New York.

Park, Innwon and Soonchan Park.,2008. Reform Creating Regional Trade Agreements and Foreign Direct Investment: Applications for East Asia, Pacific Economic Review, 13(5), 550-566.

Pindyck, Robert. and Daniel Rubinfeld.,2005. Microeconomics, (6th ed.). New Jersey: Prentice Hall International Edition.

Plummer, M.G and David Cheong, July, 2008.FDI Effects of ASEAN Integration. http://www.jhubc.it/facultypages/dCheong/4PlummerandCheongFDIASEANIntegration.pdf

Polak, J.J.,1962.International Coordination of Economic Policy, Staff Papers, IMF, 9(2),149-181.

Poon, Jessie P. H., Edmund R. Thompson, Philip F. Kelly.,2000. Myth of the Triad? The Geography of Trade and Investment Blocs. Transactions of the Institute of British Geographers, New Series, 25(4), 427-444.

Pugel ,Thomas A.,1981. The Determinants of Foreign Direct Investment: An Analysis of US Manufacturing Industries. Managerial and Decision Economics, 2(4), 220-228.

Ray , Edward John.,April,1977. Foreign Direct Investment in Manufacturing. The Journal of Political Economy, 85(2), 283-297.

Ravenhill, John.,1995. Economic Cooperation in Southeast Asia. The University of California: The Regents.

Rob, Rafael and Nikolaos Vettas.,July,2003. Foreign Direct Investment and Exports with Growing Demand, The Review of Economic Studies, 70(3), 629-648.

Sahoo, P.,2006. Foreign Direct Investment in South Asia: Policy, Trends, Impact and Determinants. ADB Institute Discussion Paper, 56. Tokyo: ADB Institute.

Salvatore, Dominick.,2004. International Economics, 8th edition. USA: John Wiley and Sons, 322.

Sethi, Deepak, S. E. Guisinger, S. E. Phelan, D. M. Berg.,July,2003. Trends in Foreign Direct Investment Flows: A Theoretical and Empirical Analysis. Journal of International Business Studies, 34 (4), 315-326. Severino, R.,1999. Rise to the Challenge. Jakarta: the ASEAN Secretariat.

Steffen, Huck, Hans-Theo Normann and Jorg Oechssler.,1999. Learning in Cournot Oligopoly – An Experiment. The Economic Journal, 109, 80-95.

Urata, Shujiro.,1993. Japanese Foreign Direct Investment and Its Effect on Foreign Trade in Asia. In: T. Ho and A.O. Krueger. Trade and Protection. Chicago: University of Chicago Press, 273-304.

___________ and Okabe, December, 2007 in Urata,Shujiro, Competitive Regionalism in East Asia: An Economic Analysis, GIARI Working Paper, E-2, 20.

Verico, Kiki., 2008.The Impact of ASEAN’s Intra-trade to FDI Inflows from Non-Member States: The Cases of Indonesia, Malaysia and Thailand, 1987-2006”. Economics and Finance Indonesia, 55(3), 253-280.

__________.,2010. Does Intratrade Affect Investment Creation in Southeast Asia? Case Study of FTA’s Effect on FDI Flows in Indonesia, Malaysia and Thailand, The 44th Annual ASPAC International Conference, Portland State University, Oregon, USA, 18 – 20 June.

__________.,2011. The Impact of Direct Bilateral Free Trade Agreement (BFTA) to ASEAN’s Intra-Regional Trade and Individual Country’s Investment Creation: The Case of Indonesia, Malaysia and Thailand, 1988-2008”. Economics and Finance Indonesia, 59(2), 191-214.

Viner, J..1950, The Custom Union Issue, New York: Carnegie Endowment for International Peace.

Vogelvang, Ben.,2005. Econometric:Theory and Applications with E-Views, (1st ed.). UK: Pearson Education Limited.

Walz, Uwe. February, 1997. Innovation, Foreign Direct Investment and Growth. Economica, New Series, 64 (253), 63-79.