Potential of economic integration on foreign direct investment in ASEAN.

Abstract

This paper examines the potential of economic integration on Foreign Direct Investment (FDI) in the Association of Southeast Asian Nations (ASEAN) member countries compared with the European Union (EU) using quantitative analysis. In the early 1990s and before the 1997 Asian financial crisis, ASEAN member countries have obtained more FDI than China but lesser FDI than the latter after that period. Therefore, ASEAN leaders concerned about that lesser FDI in the region decided to establish the ASEAN Economic Community (AEC) which is one of the three pillars of the ASEAN Community in order to re-attract FDI into ASEAN. The end goal of the AEC is the creation of a single market and production base that require a higher degree of regional economic integration. The relationship between FDI and trade openness (i.e. a component of economic integration) is analysed in ths paper by putting some macroeconomic variables that support FDI in the region via the use of the Statistical Packages for Social Science (SPSS) software. The outcome shows that ASEAN member countries need to achieve full economic integration and if the ASEAN and the EU combined to implement economic integration it will be likely to attract more FDI than ASEAN and EU doing so separately.