The relationship between ease of doing business and FDI attraction in South-Eastern Asia

Abstract

Despite extensive research on foreign direct investment (FDI), the specific dynamics and determinants affecting FDI inflows to South-Eastern Asia remain largely unexplored.  This study using Dunning's OLI theory to identify the economic determinants of foreign direct investment (FDI) and examines the correlation between FDI inflows and the ease of doing business (EODB).  This study aims to examine the effect of ease of doing business indicators on foreign direct investment inflows and the degree to which they affect the volume of FDI inflows in South-Eastern Asia.  Interest in the determinants of foreign direct investment has surged, as it is regarded as essential for capital inflows to poor countries.   This research utilises a Fully Modified Ordinary Least Squares (FMOLS) panel regression to analyse FDI flow variations among seven countries—Brunei Darussalam, Cambodia, Lao PDR, Malaysia, Philippines, Thailand, and Vietnam—during the period from 2006 to 2019.  The results indicated a substantial and enduring correlation between foreign direct investment (FDI) and the enforcement of contracts, investor protection, tax compliance, and GDP per capita.  The research underscores the significance of EODB variables in attracting FDI to South-East Asia.  Policymakers must prioritise enhancing the business environment by streamlining processes, including investor protection and tax system simplification.  By prioritising certain sectors, governments can cultivate a more conducive environment for foreign investors, leading to heightened FDI inflows.  The results suggest that targeted reforms in these critical sectors can significantly enhance South-East Asia's appeal as a foreign direct investment destination.

Keywords: {'name': 'Foreign Direct Investment, Ease of Doing Business, Fully Modified Ordinary Least Squares (FMOLS), South-Eastern Asia'}

Authors & affiliations

Darlington Chizema
Affiliation not supplied

Ramos E. Mabugu
Affiliation not supplied

Christelle Meniago
Affiliation not supplied

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