Abstract
In view of the changing FDI landscape, in particular, a drastic increase in out-ward FDI from developing and transition economies in recent years, this paper attempts to explore the possible impacts of outward FDI other than domestic savings and inward foreign direct investment on domestic investment. The major contribution of this study is that it is the first effort to empirically analyse the short- and long-run effects of the outward FDI using panel data of ASEAN–8 countries, which could provide useful policy implications for governments at both regional and international levels to achieve inclusive growth and sustainable development. Using pool mean group analysis, this paper finds that the gross domestic saving, inward FDI and outward FDI have a positive long-run impact on the gross domestic investment even though their long-run estimates are inelastic. The empirical study reveals that both inward FDI and outward FDI, to some extent, are complementary to the gross domestic investment.
Highlights
As globalisation unfolds, the Association of Southeast Asian Nations (ASEAN)1 is increasingly operating as part of the global production networks
This paper intends to explore and study the possible impacts of domestic saving (DS), inward foreign direct investment (FDI) (IFDI), and outward FDI (OFDI) on domestic investment for the eight ASEAN member states based on the theoretical model developed by Feldstein (1995), which is an extension of the well-known Feldstein and Horioka (1980) model examining the relationship between saving and investment among Organisation for Economic Co-operation and Development (OECD) countries during the 1960s and 1970s
The upward trend of cross-border direct investment by ASEAN multinationals poses an interesting empirical question pertaining to the effect of OFDI on domestic investment as the latter macroeconomic variable is still an important source of economic growth and development for the region
Summary
The Association of Southeast Asian Nations (ASEAN) is increasingly operating as part of the global production networks. This paper intends to explore and study the possible impacts of domestic saving (DS), inward FDI (IFDI), and OFDI on domestic investment for the eight ASEAN member states based on the theoretical model developed by Feldstein (1995), which is an extension of the well-known Feldstein and Horioka (1980) model examining the relationship between saving and investment among Organisation for Economic Co-operation and Development (OECD) countries during the 1960s and 1970s. Given the ASEAN is a heterogeneous region, which comprises member countries with differing sizes, levels of economic development and governance system, the current study employs the dynamic panel data analysis This data analytical approach takes explicitly into account the heterogeneity of each cross-sectional units by allowing for individual-specific effects and more reliable and more efficient estimates (Davidson, MacKinnon 2004).
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