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THE DETERMINANTS OF OUTWARD FOREIGN DIRECT INVESTMENT FROM ASEAN
Corresponding Author(s) : Alisa Ibrahim
Humanities & Social Sciences Reviews,
Vol. 7 No. 2 (2019): March
Abstract
Purpose of Study: This study investigates the determinants of ASEAN outward foreign direct investment (OFDI) and the extent to which the four general motives of OFDI (market seeking, efficiency-seeking, resource-seeking, strategic-assets-seeking) can explain the phenomenon in the four chosen ASEAN countries (Malaysia, Singapore, Thailand and Indonesia).
Methodology: We used panel data from 2001 – 2016 and the Tobit regression model to ascertain the results. We found that each country possibly has slightly different motives between each other although market seeking is seen as the general motive. As most of the previous studies focused on other developing countries such as BRICS, this study contributes to the small but growing literature of ASEAN economies. Furthermore, the usage of the Tobit regression Model helps us in explaining the variables with zero value, hence yielding a more informative result.
Results: We found that, in general, some determinants were consistent with findings in the literature, while others need further investigation. Lastly, based on the findings, we can conclude that the mainstream theory of outward FDI applies to ASEAN.
Keywords
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- Arellano, M., O. Bover and J. Azcona, 1997. Autoregressive models with sample selectivity for panel data. Centro de EstudiosMonetarios Y Financieros (March), 1992.
- ASEAN Secretariat, 2012.Asean investment report: The changing FDI landscape.
- Athukorala, P. and S. Waglé, 2011. Foreign direct investment in Southeast Asia : Is Malaysia falling behind ? Foreign direct investment in Southeast Asia: Is Malaysia falling behind? ASEAN Economic Bulletin, 28(2): 115–133. DOI: https://doi.org/10.1355/ae28-2b
- Azam, M. and L. Lukman, 2010. Determinants of foreign direct investment in India, Indonesia and Pakistan: A quantitative approach. Journal of Managerial Sciences, 4(1): 31–44.
- Banga, R., 2006. The export-diversifying impact of Japanese and US foreign direct investments in the Indian manufacturing sector. Journal of International Business Studies, 37(4): 558–568. DOI: https://doi.org/10.1057/palgrave.jibs.8400207
- Barney, J., 1991. Firm resources and sustained competitive advantage. Journal of Management, 17(1): 99–120. DOI: https://doi.org/10.1177/014920639101700108
- Bhaumik, S.K. and N. Driffield, 2011. Direction of outward FDI of EMNEs: Evidence from the Indian pharmaceutical sector. Thunderbird International Business Review, 53(5): 615–628. DOI: https://doi.org/10.1002/tie.20438
- Bhaumik, S.K., N. Driffield and S. Pal, 2010. Does ownership structure of emerging market firms affect their outward FDI? The case of Indian automotive and pharmaceutical sectors. Journal of International Business Studies, 41: 437–450. DOI: https://doi.org/10.1057/jibs.2009.52
- Brunnschweiler, C.N. and E.H. Bulte, 2008. The resource curse revisited and revised: A tale of paradoxes and red herrings. Journal of Environmental Economics and Management, 55(3): 248–264. DOI: https://doi.org/10.1016/j.jeem.2007.08.004
- Buckley, P. and M. Casson, 1976.The future of the multinational enterprise. DOI: https://doi.org/10.1007/978-1-349-02899-3
- Buckley, P.J., L.J. Clegg, A.R. Cross, X. Liu, H. Voss and P. Zheng, 2007. The determinants of chinese outward foreign direct investment. Journal of international business studies. 38(4): 499–518. DOI: https://doi.org/10.1057/palgrave.jibs.8400277
- Chakrabarti, A., 2001. The determinants of foreign direct investment : Sensitivity analyses of cross-country regressions. Kyklos, 54(1): 89–114. DOI: https://doi.org/10.1111/1467-6435.00142
- Cui, L. and F. Jiang, 2010. Behind ownership decision of Chinese outward FDI: Resources and institutions. Asia Pacific Journal of Management, 27(4): 751–774. DOI: https://doi.org/10.1007/s10490-009-9136-5
- Demir, F., 2015. Effects of FDI flows on institutional development in the South: Does it matter where the investors are from?, 1: 1689–1699.
- Deng, P., 2004. Outward investment by Chinese MNCs : Motivations and implications. Business Horizons, 47(3): 8–16. DOI: https://doi.org/10.1016/S0007-6813(04)00023-0
- Duanmu, J. and Y. Guney, 2009.A panel data analysis of locational determinants of Chinese and Indian outward foreign direct investment. Journal of Asia Business Studies, 3(2): 1–15. DOI: https://doi.org/10.1108/15587890980001512
- Dunning, J.H., 2006. Comment on dragon multinationals: New players in 21st century globalization. Asia Pacific Journal of Management, 23(2): 139–141. DOI: https://doi.org/10.1007/s10490-006-7161-1
- Dunning, J.H., 2009. Location and the multinational enterprise: A neglected factor? Journal of International Business Studies, 40(1): 5–19. DOI: https://doi.org/10.1057/jibs.2008.74
- Dunning, J.H., C.S. Kim and J.D. Lin, 2001.Incorporating trade into the investment development path: A case study of Korea and Taiwan. Oxford Development Studies, 29(2): 145–154. DOI: https://doi.org/10.1080/13600810123926
- Dunning, J.H. and S.M. Lundan, 1993.Multinational enterprises and the global economy.Edward Elgar Publishing.
- Franco, C., F. Rentocchini and G.V. Marzetti, 2008. Why do firms invest abroad ? An analysis of the motives underlying foreign direct investments. Electronic Copy: 1–29. DOI: https://doi.org/10.2139/ssrn.1283573
- Giroud, A. and H. Mirza, 2010.MNE linkages in ASEAN. In Competitiveness of the ASEAN Countries Corporate and Regulatory Drivers: 82–102.
- Hiratsuka, D., 2006. Outward FDI from and intraregional FDI in ASEAN : Trends and drivers. IDED Discussion Paper.
- Hsiao, C., 2003. Analysis of panel data. Cambridge: Cambridge University Press. DOI: https://doi.org/10.1017/CBO9780511754203
- Ikuo, K. and K. Hiroshi, 2010. Shock transmission mechanism of the economic crisis in East Asia: An application of international input-output analysis. IDE Discussion Paper,, 1(220): 1–32.
- Johanson, J. and J.E. Vahlne, 1977.The internationalization process of the firm-a model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8(1): 23–32. DOI: https://doi.org/10.1057/palgrave.jibs.8490676
- Johanson, J. and F. Wiedersheim-Paul, 1975. The internationalization of the firm: Four Swedish cases. Journal of Management Studies, 12(3): 305–322. DOI: https://doi.org/10.1111/j.1467-6486.1975.tb00514.x
- Kalotay, K. and A. Sulstarova, 2010.Modelling Russian outward FDI. Journal of International Management, 16(2): 131–142. DOI: https://doi.org/10.1016/j.intman.2010.03.004
- Kang, Y. and F. Jiang, 2012. FDI location choice of Chinese multinationals in East and Southeast Asia: Traditional economic factors and institutional perspective. Journal of World Business, 47(1): 45–53. DOI: https://doi.org/10.1016/j.jwb.2010.10.019
- Kim, J.M. and D.K. Rhe, 2009.Trends and determinants of South Korean outward foreign direct investment. The Copenhagen Journal of Asian Studies, 27(1): 126–154. DOI: https://doi.org/10.22439/cjas.v27i1.2288
- Liu, X., T. Buck and C. Shu, 2005. Chinese economic development, the next stage: Outward FDI? International Business Review, 14(1): 97–115. DOI: https://doi.org/10.1016/j.ibusrev.2004.12.003
- Luo, Y., Q. Xue and B. Han, 2010. How emerging market governments promote outward FDI: Experience from China. Journal of World Business, 45(1): 68–79. DOI: https://doi.org/10.1016/j.jwb.2009.04.003
- Markusen, J.R., 1998. Multinational firms, location and trade. World Economy, 21(6): 733–756. DOI: https://doi.org/10.1111/1467-9701.00161
- Pantelidis, P. and D. Kyrkilis, 2005.A cross country analysis of outward foreign direct investment patterns. International Journal of Social Economics, 32(6): 510-519. DOI: https://doi.org/10.1108/03068290510596998
- Peng, M.W., 2002. Towards an institution-based view of business strategy. Asia Pacific Journal of Management, 19(2): 251–267. DOI: https://doi.org/10.1023/A:1016291702714
- Peng, M.W., 2005. Perspectives-from China strategy to global strategy. Asia Pacific Journal of Management, 22(2): 123–141. DOI: https://doi.org/10.1007/s10490-005-1251-3
- Peng, M.W., D.Y.L. Wang and Y. Jiang, 2008. An institution-based view of international business strategy: A focus on emerging economies. Journal of International Business Studies, 39(5): 920–936. DOI: https://doi.org/10.1057/palgrave.jibs.8400377
- Porter, M., 1990.The competitive advantage of nations. 65: 43-59. DOI: https://doi.org/10.1007/978-1-349-11336-1
- Ramasamy, B., M. Yeung and S. Laforet, 2012. China’s outward foreign direct investment: Location choice and firm ownership. Journal of World Business, 47: 17–25. DOI: https://doi.org/10.1016/j.jwb.2010.10.016
- Riaz, N. and S. Riaz, 2018. Investment and economic growth: A panel data analysis. Asian Development Policy Review, 6(1): 20-31. DOI: https://doi.org/10.18488/journal.107.2018.61.20.31
- Rismayadi, B. and M. Maemunah, 2018. Creative economy to increase community revenue based on tourism object, Medalsari Village, Pangkalan District Karawang regency. Journal of Accounting, Business and Finance Research, 3(1): 28-35. DOI: https://doi.org/10.20448/2002.31.28.35
- Saad, S., I. Umer and F. Ahmed, 2018.An empirical evidence of over reaction hypothesis on Karachi StockExchange (KSE). Asian Economic and Financial Review, 8(4): 449-465. DOI: https://doi.org/10.18488/journal.aefr.2018.84.449.465
- Salehizadeh, M., 2007. Emerging economies’ multinationals: Current status and future prospects. Third World Quarterly, 28(6): 1151–1166. DOI: https://doi.org/10.1080/01436590701507586
- Song, Z.H., Q. Jia and D.M. Lee, 2018.Network positions, similarities, prior collaboration experiences and the evolution of co-authorship networks. International Journal of Emerging Trends in Social Sciences, 2(2): 34-40. DOI: https://doi.org/10.20448/2001.22.34.40
- Sundjo, F. and F. Aziseh, 2018. An empirical investigation into the key drivers of economic performance in the CEMAC zone: A panel corrected standard errors approach. International Journal of Business, Economics and Management, 5(6): 189-200. DOI: https://doi.org/10.18488/journal.62.2018.56.189.200
- Taylor, R., 2002. Globalization strategies of Chinese companies: Current developments and future prospects. Asian Bus Manage, 1(2): 209–225. DOI: https://doi.org/10.1057/palgrave.abm.9200011
- Tolentino, P.E., 2010. Home country macroeconomic factors and outward FDI of China and India. Journal of International Management, 16(2): 102–120. DOI: https://doi.org/10.1016/j.intman.2010.03.002
- Unctad, 2006.Transnational corporations. 15.
- Wang, C., J. Hong, M. Kafouros and A. Boateng, 2012. What drives outward FDI of Chinese firms? Testing the explanatory power of three theoretical frameworks. International Business Review, 21(3): 425–438. DOI: https://doi.org/10.1016/j.ibusrev.2011.05.004
- Wooldridge, J.M., 2005. Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity. Journal of Applied Econometrics, 20(1): 39–54. DOI: https://doi.org/10.1002/jae.770
- Yeung, H.W.C., 1998. Transnational economic synergy and business networks: The case of two-way investment between Malaysia and Singapore. Regional Studies, 32(8): 687–706. DOI: https://doi.org/10.1080/00343409850119391
References
Arellano, M., O. Bover and J. Azcona, 1997. Autoregressive models with sample selectivity for panel data. Centro de EstudiosMonetarios Y Financieros (March), 1992.
ASEAN Secretariat, 2012.Asean investment report: The changing FDI landscape.
Athukorala, P. and S. Waglé, 2011. Foreign direct investment in Southeast Asia : Is Malaysia falling behind ? Foreign direct investment in Southeast Asia: Is Malaysia falling behind? ASEAN Economic Bulletin, 28(2): 115–133. DOI: https://doi.org/10.1355/ae28-2b
Azam, M. and L. Lukman, 2010. Determinants of foreign direct investment in India, Indonesia and Pakistan: A quantitative approach. Journal of Managerial Sciences, 4(1): 31–44.
Banga, R., 2006. The export-diversifying impact of Japanese and US foreign direct investments in the Indian manufacturing sector. Journal of International Business Studies, 37(4): 558–568. DOI: https://doi.org/10.1057/palgrave.jibs.8400207
Barney, J., 1991. Firm resources and sustained competitive advantage. Journal of Management, 17(1): 99–120. DOI: https://doi.org/10.1177/014920639101700108
Bhaumik, S.K. and N. Driffield, 2011. Direction of outward FDI of EMNEs: Evidence from the Indian pharmaceutical sector. Thunderbird International Business Review, 53(5): 615–628. DOI: https://doi.org/10.1002/tie.20438
Bhaumik, S.K., N. Driffield and S. Pal, 2010. Does ownership structure of emerging market firms affect their outward FDI? The case of Indian automotive and pharmaceutical sectors. Journal of International Business Studies, 41: 437–450. DOI: https://doi.org/10.1057/jibs.2009.52
Brunnschweiler, C.N. and E.H. Bulte, 2008. The resource curse revisited and revised: A tale of paradoxes and red herrings. Journal of Environmental Economics and Management, 55(3): 248–264. DOI: https://doi.org/10.1016/j.jeem.2007.08.004
Buckley, P. and M. Casson, 1976.The future of the multinational enterprise. DOI: https://doi.org/10.1007/978-1-349-02899-3
Buckley, P.J., L.J. Clegg, A.R. Cross, X. Liu, H. Voss and P. Zheng, 2007. The determinants of chinese outward foreign direct investment. Journal of international business studies. 38(4): 499–518. DOI: https://doi.org/10.1057/palgrave.jibs.8400277
Chakrabarti, A., 2001. The determinants of foreign direct investment : Sensitivity analyses of cross-country regressions. Kyklos, 54(1): 89–114. DOI: https://doi.org/10.1111/1467-6435.00142
Cui, L. and F. Jiang, 2010. Behind ownership decision of Chinese outward FDI: Resources and institutions. Asia Pacific Journal of Management, 27(4): 751–774. DOI: https://doi.org/10.1007/s10490-009-9136-5
Demir, F., 2015. Effects of FDI flows on institutional development in the South: Does it matter where the investors are from?, 1: 1689–1699.
Deng, P., 2004. Outward investment by Chinese MNCs : Motivations and implications. Business Horizons, 47(3): 8–16. DOI: https://doi.org/10.1016/S0007-6813(04)00023-0
Duanmu, J. and Y. Guney, 2009.A panel data analysis of locational determinants of Chinese and Indian outward foreign direct investment. Journal of Asia Business Studies, 3(2): 1–15. DOI: https://doi.org/10.1108/15587890980001512
Dunning, J.H., 2006. Comment on dragon multinationals: New players in 21st century globalization. Asia Pacific Journal of Management, 23(2): 139–141. DOI: https://doi.org/10.1007/s10490-006-7161-1
Dunning, J.H., 2009. Location and the multinational enterprise: A neglected factor? Journal of International Business Studies, 40(1): 5–19. DOI: https://doi.org/10.1057/jibs.2008.74
Dunning, J.H., C.S. Kim and J.D. Lin, 2001.Incorporating trade into the investment development path: A case study of Korea and Taiwan. Oxford Development Studies, 29(2): 145–154. DOI: https://doi.org/10.1080/13600810123926
Dunning, J.H. and S.M. Lundan, 1993.Multinational enterprises and the global economy.Edward Elgar Publishing.
Franco, C., F. Rentocchini and G.V. Marzetti, 2008. Why do firms invest abroad ? An analysis of the motives underlying foreign direct investments. Electronic Copy: 1–29. DOI: https://doi.org/10.2139/ssrn.1283573
Giroud, A. and H. Mirza, 2010.MNE linkages in ASEAN. In Competitiveness of the ASEAN Countries Corporate and Regulatory Drivers: 82–102.
Hiratsuka, D., 2006. Outward FDI from and intraregional FDI in ASEAN : Trends and drivers. IDED Discussion Paper.
Hsiao, C., 2003. Analysis of panel data. Cambridge: Cambridge University Press. DOI: https://doi.org/10.1017/CBO9780511754203
Ikuo, K. and K. Hiroshi, 2010. Shock transmission mechanism of the economic crisis in East Asia: An application of international input-output analysis. IDE Discussion Paper,, 1(220): 1–32.
Johanson, J. and J.E. Vahlne, 1977.The internationalization process of the firm-a model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8(1): 23–32. DOI: https://doi.org/10.1057/palgrave.jibs.8490676
Johanson, J. and F. Wiedersheim-Paul, 1975. The internationalization of the firm: Four Swedish cases. Journal of Management Studies, 12(3): 305–322. DOI: https://doi.org/10.1111/j.1467-6486.1975.tb00514.x
Kalotay, K. and A. Sulstarova, 2010.Modelling Russian outward FDI. Journal of International Management, 16(2): 131–142. DOI: https://doi.org/10.1016/j.intman.2010.03.004
Kang, Y. and F. Jiang, 2012. FDI location choice of Chinese multinationals in East and Southeast Asia: Traditional economic factors and institutional perspective. Journal of World Business, 47(1): 45–53. DOI: https://doi.org/10.1016/j.jwb.2010.10.019
Kim, J.M. and D.K. Rhe, 2009.Trends and determinants of South Korean outward foreign direct investment. The Copenhagen Journal of Asian Studies, 27(1): 126–154. DOI: https://doi.org/10.22439/cjas.v27i1.2288
Liu, X., T. Buck and C. Shu, 2005. Chinese economic development, the next stage: Outward FDI? International Business Review, 14(1): 97–115. DOI: https://doi.org/10.1016/j.ibusrev.2004.12.003
Luo, Y., Q. Xue and B. Han, 2010. How emerging market governments promote outward FDI: Experience from China. Journal of World Business, 45(1): 68–79. DOI: https://doi.org/10.1016/j.jwb.2009.04.003
Markusen, J.R., 1998. Multinational firms, location and trade. World Economy, 21(6): 733–756. DOI: https://doi.org/10.1111/1467-9701.00161
Pantelidis, P. and D. Kyrkilis, 2005.A cross country analysis of outward foreign direct investment patterns. International Journal of Social Economics, 32(6): 510-519. DOI: https://doi.org/10.1108/03068290510596998
Peng, M.W., 2002. Towards an institution-based view of business strategy. Asia Pacific Journal of Management, 19(2): 251–267. DOI: https://doi.org/10.1023/A:1016291702714
Peng, M.W., 2005. Perspectives-from China strategy to global strategy. Asia Pacific Journal of Management, 22(2): 123–141. DOI: https://doi.org/10.1007/s10490-005-1251-3
Peng, M.W., D.Y.L. Wang and Y. Jiang, 2008. An institution-based view of international business strategy: A focus on emerging economies. Journal of International Business Studies, 39(5): 920–936. DOI: https://doi.org/10.1057/palgrave.jibs.8400377
Porter, M., 1990.The competitive advantage of nations. 65: 43-59. DOI: https://doi.org/10.1007/978-1-349-11336-1
Ramasamy, B., M. Yeung and S. Laforet, 2012. China’s outward foreign direct investment: Location choice and firm ownership. Journal of World Business, 47: 17–25. DOI: https://doi.org/10.1016/j.jwb.2010.10.016
Riaz, N. and S. Riaz, 2018. Investment and economic growth: A panel data analysis. Asian Development Policy Review, 6(1): 20-31. DOI: https://doi.org/10.18488/journal.107.2018.61.20.31
Rismayadi, B. and M. Maemunah, 2018. Creative economy to increase community revenue based on tourism object, Medalsari Village, Pangkalan District Karawang regency. Journal of Accounting, Business and Finance Research, 3(1): 28-35. DOI: https://doi.org/10.20448/2002.31.28.35
Saad, S., I. Umer and F. Ahmed, 2018.An empirical evidence of over reaction hypothesis on Karachi StockExchange (KSE). Asian Economic and Financial Review, 8(4): 449-465. DOI: https://doi.org/10.18488/journal.aefr.2018.84.449.465
Salehizadeh, M., 2007. Emerging economies’ multinationals: Current status and future prospects. Third World Quarterly, 28(6): 1151–1166. DOI: https://doi.org/10.1080/01436590701507586
Song, Z.H., Q. Jia and D.M. Lee, 2018.Network positions, similarities, prior collaboration experiences and the evolution of co-authorship networks. International Journal of Emerging Trends in Social Sciences, 2(2): 34-40. DOI: https://doi.org/10.20448/2001.22.34.40
Sundjo, F. and F. Aziseh, 2018. An empirical investigation into the key drivers of economic performance in the CEMAC zone: A panel corrected standard errors approach. International Journal of Business, Economics and Management, 5(6): 189-200. DOI: https://doi.org/10.18488/journal.62.2018.56.189.200
Taylor, R., 2002. Globalization strategies of Chinese companies: Current developments and future prospects. Asian Bus Manage, 1(2): 209–225. DOI: https://doi.org/10.1057/palgrave.abm.9200011
Tolentino, P.E., 2010. Home country macroeconomic factors and outward FDI of China and India. Journal of International Management, 16(2): 102–120. DOI: https://doi.org/10.1016/j.intman.2010.03.002
Unctad, 2006.Transnational corporations. 15.
Wang, C., J. Hong, M. Kafouros and A. Boateng, 2012. What drives outward FDI of Chinese firms? Testing the explanatory power of three theoretical frameworks. International Business Review, 21(3): 425–438. DOI: https://doi.org/10.1016/j.ibusrev.2011.05.004
Wooldridge, J.M., 2005. Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity. Journal of Applied Econometrics, 20(1): 39–54. DOI: https://doi.org/10.1002/jae.770
Yeung, H.W.C., 1998. Transnational economic synergy and business networks: The case of two-way investment between Malaysia and Singapore. Regional Studies, 32(8): 687–706. DOI: https://doi.org/10.1080/00343409850119391