ASEAN and FTAA: External Threats and Internal Institutional Weaknesses

Posted: 19 Aug 2013

See all articles by Yasheng Huang

Yasheng Huang

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Bernard Yin Yeung

National University of Singapore - Business School

Date Written: January 10, 2003

Abstract

ASEAN countries perceive the possible formation of the FTAA as a potential threat on the grounds that it may divert export markets and foreign direct investment (FDI) capital to the FTAA region. This effect, together with the “China factor†and the hangover from the 1997 financial crisis, posts a concern to the ASEAN countries’ economic growth. We show that, with Singapore as an exception, ASEAN countries are afflicted with state activism, poor property rights protection, and under-developed corporate governance. We argue that a poor institutional environment may exacerbate the effects of an external shock â€" such as that of FTAA â€" and thus we need to explicitly incorporate the role of institutional environments in our analysis. We further argue that while FDI flows to locations with market opportunities, a location’s institutional environment affects the composition of FDI. Due to ASEAN countries’ institutional weakness, its substantial inward FDI has mainly substituted, rather than complemented, local entrepreneurship. As FTAA may divert FDI flows into ASEAN countries, their appropriate response is to improve institutional quality so that the share of the more productive complementary FDI will increase in the total FDI inflows.

Suggested Citation

Huang, Yasheng and Morck, Randall K. and Yeung, Bernard Yin, ASEAN and FTAA: External Threats and Internal Institutional Weaknesses (January 10, 2003). Business & Politics, Vo. 6, Issue 1, 2004; University of Alberta School of Business Research Paper No. 2013-641. Available at SSRN: https://ssrn.com/abstract=2277049

Yasheng Huang (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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Randall K. Morck

University of Alberta - Department of Finance and Statistical Analysis ( email )

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780-492-5683 (Phone)
780-492-3325 (Fax)

National Bureau of Economic Research (NBER)

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European Corporate Governence Institute ( email )

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Asian Bureau of Finance and Economic Research ( email )

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1 Business Link
Singapore, 117592
Singapore

Bernard Yin Yeung

National University of Singapore - Business School ( email )

15 Kent Ridge Drive
BIZ 1 Level 6
Singapore, 119245
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

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