Interdependence of FDI between India and ASEAN- 5: Evidence from Causality

Rudra Prakash Prakash Pradhan

doi:10.5539/ibr.v3n4p156

Abstract

The paper explores the interdependence of FDI between India and ASEAN-5 countries namely, namely Indonesia, Malaysia, Philippines, Singapore and Thailand, at the individual and group level. The empirical analysis is based on time series cointegration and causality test over the period 1970-2008. The findings suggest the presence of interdependence of FDI between India and ASEAN-5 countries. The policy implication of this study is that with the increasing interest of economic integration around the globe, especially with India-ASEAN Regional Trade and Investment Area (RTIA), the existence of interdependence of FDI between member countries is an important feature for maintaining growth sustainability in the Asian economy. Keywords: Economic growth, Defense spending, Panel cointegration.

Highlights

The effect of regional integration on trade flows and foreign direct investment flows are very common in international finance, during the current globalization era
Once the first differences of the variables are considered, the null hypothesis of unit root is rejected at 5% significance level. This is exclusively true for India and Association of Southeast Asian Nations (ASEAN)-5, namely Indonesia, Malaysia, Philippines, Singapore and Thailand, at individual level and group level
This suggests that foreign direct investment (FDI) inflows are very interdependent between India, Malaysia and Thailand

Summary

Introduction

The effect of regional integration on trade flows and foreign direct investment flows are very common in international finance, during the current globalization era. The objective is to increase foreign direct investment (FDI) inflows and trade flows among the member countries. The Association of Southeast Asian Nations (ASEAN) Free Trade Agreement (AFTA) was designed as a means to increase FDI inflows and to stimulate interregional trade in the Southeast Asia (Kreinin et al, 2008). India-ASEAN Regional Trade and Investment Area (RTIA) is designed to stimulate FDI and trade flows among its member countries (Karmakar, 2005). The objective of this paper is to study the interdependencies of FDI inflows between India and ASEAN-5 countries, namely Indonesia, Malaysia, Philippines, Singapore and Thailand, at the individual country level and as a whole

Objectives

Results

Conclusion