Outward FDI and Home Country Exports: Empirical Evidence from ASEAN Region

Abstract

Purpose - The purpose of this paper is to examine the effects of outward foreign direct investment (OFDI) on the competitiveness of home-country exports in ASEAN region. Design/Methodology/Approach - The paper uses OLS regressions based on unit root, correlation techniques and a battery of specification tests applied to an annual time series data ranging from 1981 to 2013. Diagnostic test underscore the accuracy and reliability of estimations.Findings - The paper reveals that the coefficients of OFDI are positive and significant for four ASEAN countries, i.e. Malaysia, Philippines, Singapore and Thailand. It supports the argument that complementary outweighs the substitution effects of OFDI on exports of home country. Moreover, trade openness is significantly influential on exports, which indicates the positive impact of trade liberalization. In addition, currency fluctuations and inward FDI are also important factors for progressive home country exports. Originality/Value - The paper provides thorough analysis of links between OFDI and exports of home country on macro level with the data set of more than three decades for emerging ASEAN economies, rather than focusing on developed regions. This is the first attempt of its kind to analyze the relationship of these two variables on aggregate level for ASEAN region from 1981 to 2013 data set. In order to reinforce investment flows authorities should continue progressive reduction of barriers and market reforms to enhance the progressive role of inward and outward capital flows.