The Impact of ASEAN Trade Integration on Direct Foreign Investment

Abstract

A growing proportion of international trade within the Association of Southeast Asian Nations (ASEAN) occurs within multinational enterprises. This paper reviews the present trade and foreign investment environment within ASEAN members and analyzes the impact of an ASEAN free trade agreement (AFTA) on foreign investment in the region. We estimate that a reduction of regional trade barriers will make South East Asia a more attractive investment destination to both service ASEAN consumers and integrate production processes within the region. Some indications about potential changes in the allocations of investment within the region are also provided.