Foreign Direct Investment and Economic Development: A Long-run Examination for Three Emerging ASEAN Economies
Foreign Direct Investment and Economic Development: A Long-run Examination for Three Emerging ASEAN Economies

Summary/Abstract: The paper examines and provides a comparative assessment with respect to the long-run dynamics of inward foreign direct investment (FDI) and economic development in Cambodia, Laos, and Vietnam during 1994-2016. Through a cointegration analysis, the paper first investigates whether a long-run equilibrium relationship exists between FDI and real GDP per capita. After cointegration is verified, it subsequently assesses the long-run effect of FDI on development. The results indicate that in each of the three emerging ASEAN economies inward FDI and real GDP per capita are cointegrated, and thus exhibit a stable long-run relationship over the study period. The magnitude of the quantitative impact of FDI differs among the three countries. The long-run elasticity of FDI is found to be at a similar level in Cambodia and Laos, whilst the elasticity estimate of Vietnam is considerably higher. This indicates that in Vietnam the size of the positive effect of inward FDI is significantly larger. Overall, our long-run analysis reveals that a steady upward trend in FDI has been achieved over the study period and that the inflow of FDI has had a substantial beneficial effect on real GDP per capita levels. Consequently, the findings imply that economic development would be expected to be strengthened by policies that facilitate inward FDI.

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