What Drives OFDI? Comparative Evidence from ASEAN and Selected Asian Economies

Abstract

The purpose of this paper is to examine the different factors that are influential on outward foreign direct investment (OFDI). A sample of four ASEAN countries is compared with dominant Asian economies for a period of more than three decades. Time series data starting from 1981 to 2013 was selected for analysis. A separate econometric model using OLS, with a battery of complementary tests, was estimated for every country to determine the variables affecting OFDI. Exchange rates, income and interest rates affect the OFDI of most of the countries. For comparatively advanced and dominant economies (i.e. China, Japan, Korea and India), openness is the influential variable, while in ASEAN countries income levels and exchange rates are the dominant factors. Overall, different types of endowments have a different impact for every country. Previous studies have primarily examined advanced countries’ OFDI. Our work adds to the literature by focusing on ASEAN economies and by making a comparison with Asian giants. Furthermore, the validity and stability of our model is tested with a series of specifications tests. In this way our work is a useful source of information for every stake holder.

Keywords: ASEAN, Asian Economies, OFDI

JEL Classification: F21, O53, O57