International migration and foreign direct investment within Southeast Asia

Abstract

Over the last few decades, regional economic integration in Southeast Asia has been expanding rapidly following earlier transformation of trade and intensification of capital flows. The establishment of the ASEAN Economic Community in 2015 promises to promote mobility of skilled labor within the region. However, the common pattern shared among top countries in Southeast Asia for immigration is that most of their foreign workers are unskilled or semi-skilled. These workers play an important role of social and business networks connecting their home and countries of residence. This study looks at migration in the three largest receiving countries within ASEAN, namely Singapore, Malaysia and Thailand, and examines their effects on the direct investment flows from these countries to other ASEAN member states. Using the bilateral data on migration and FDI within ASEAN in 2000, 2010 and 2013, we found a complementary effect between the two variables. The effect of migration flows on the annual growth rate of FDI inflows to the migrants’ country of origin over the period is positive and highly significant. For every 100,000-person increase in the migration flows into Malaysia, Singapore and Thailand, investors from these three countries would increase their investment into the origin countries of migrants by 2% on average. The robustness check with different model specifications addressing the endogeneity concerns confirms the positive estimates. These empirical results imply that the migration flows of unskilled labor can also serve as a promoter of the flows of FDI between countries of origin and destination of migrants.