Determinants of foreign direct investment in Asia

Abstract

Foreign direct investment (FDI) is a widely discuss topic in recent years. Countries rely on FDI to stimulate the economic growth, reduce unemployment rate, develop quality infrastructure and stimulate transfer of advance technology and knowledge from developed countries. Hence, this dissertation tends to examine the determinants of FDI in Asia. This study consists of four objectives. First and foremost, author would like to identify the determinants of FDI in Asia. A panel regression analysis is conducted on 52 Asian countries over the 12 year period from 2007 to 2018. The second objective is to investigates the impact of taxation on FDI during crisis (2007 to 2009) and post-crisis (2010 to 2018) period. Next, author compares the determinants of FDI for developing and developed. The last objective focuses on the Belt Road Initiative (BRI) by distinguishing the determinants of FDI in One Belt One Road (OBOR) countries during Pre-BRI and Post-BRI. The findings show that infrastructure, trade openness, interest rate, belt road initiative and economic condition play a significant role in affecting the FDI inflow in Asia. Furthermore, the impact of taxation is only significant during post-crisis period as the government wants to stimulate the foreign investment by reducing the corporate tax rate after a drastic decline of FDI during crisis period. FDI is motivated by trade openness in developed Asia whereas economic condition and trade openness are equally important for developing Asia. Moreover, corruption and interest rate found to be significant to OBOR countries during Pre-BRI whereas trade openness, exchange rate, inflation and corruption are important factors affecting the FDI inflows for OBOR countries during post-BRI. Lastly, this study provides some useful suggestions for the policymakers to undertake in order to attract more foreign investment in Asia