Concluding Remarks

This paper investigated sources and determinants of foreign direct investment (FDI) flows to developing Asia using bilateral FDI flows for the period 1990–2005. Our panel dataset allowed us to take advantage of the time series, as well as cross-country variations in the data. The data indicated that Triad accounted for 40% of total inflows for the decade since 1995. Intra-developing Asian flows accounted for an average of 35% of total inflows to the region, with a slight decline over the last fifteen years. The bulk of the remaining inflows is from offshore financial centers (OFCs). Flows from Hong Kong, China to the People's Republic of China (PRC) and vice versa dominate FDI flows to developing Asia. Flows from Japan, Singapore, and the US to the People's Republic of China (PRC) and Hong Kong, China also stand out.

With regard to the determinants of FDI flows, the augmented gravity model for FDI flows to developing Asia fits the data well, regardless of the FDI source. However, the analysis clearly emphasizes that there are notable differences in the determinants of FDI flows from the OECD to the region as compared to intraregional flows. In particular, we find that the elasticity of distance is greater for FDI from non-Asia-Pacific OECD economies than for intradeveloping Asian flows. However, this distance effect disappears when the differences in time zones are accounted for. Stein and Daude (2006) appear to be correct; the world is not flat. Differences in time zones appear to act as a hindrance to FDI.

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