Impact of foreign direct investment on imports from intra and extra a free trade area: evidence from Asean-10

Abstract

The Association of Southeast Asian Nations (ASEAN) has been considered as the successful story for attracting foreign capital. Applying an augmented gravity model at the commodity level, this paper aims at examining if foreign direct investment inflows from inside and outside ASEAN can have different impacts on intra- or extra- region imports of this commodity. Accordingly, an unbalanced panel data set will include information of 10 main commodities classified by UNCOMTRADE in 10 countries in ASEAN from 2009 to 2013. The empirical results indicate that intra-ASEAN FDI inflows can play the role as efficiency -seeking FDI with a positive impact on ASEAN imports. However, FDI from outside ASEAN is associated with a negative relationship with imports among ASEAN but a positive effect with imports from extra region. All of these relationships are lowered for those countries with higher import volume