Abstract:
This study examines the effects of ASEAN economic integration on foreign direct investment, using a time series data from 1978 up to 2000. The five ASEAN recipients of FDI are Indonesia, Malaysia, Philippines, Singapore and Thailand, and their corresponding investors are Japan, US, the European Union and South Korea. The analysis applies a pooled regression with the OLS method to estimate the parameters of a model in order to explain the FDI factors of each country and ASEAN-5. Also, the structural change is analyzed by the dummy variables test. The results show that the formation of the AFTA has quite a different impact on each members. The FDI inflow into Malaysia and Thailand increased as a result of an increased regional integration, while the same inflows into Indonesia somehow decreased. Also, the formation of the AFTA and its impact on FDI inflow into Singapore and Philippines had not demonstrated a clear result. Reasons behind foreign investors' respond to the formation of the AFTA are reorganization investment and rationalization investment. The empirical results of such an impact on FDI indicate that investment inflows from Japan, US, and South Korea into ASEAN inceased, while the same inflows from the European Union ASEAN decreased. Also, investors from Japan, the European Union and South Korea respond well to the AFTA formation with their rationalization investment, whereas the American investors respond to the AFTA formation with their offensive import-substitution investment and defensive import substituting investment.