Introduction
With the rapid growth of countries such as the People's Republic of China (PRC) and India,
and the resurgence of Southeast Asia after the 1997–1998 currency crisis, developing Asia
has once again become one of the most dynamic economic regions in the world. It would not
be an exaggeration to say that international trade and foreign direct investment (FDI) is a
key determinant of trade and growth in much of the developing Asian region. While there
have been detailed studies on the sources and determinants of international trade flows to
developing Asia at the bilateral level, less research has been done on bilateral FDI flows.
Eichengreen and Tong (2007); Liu, Chow, and Li (2007); and Sudsawasd and
Chaisrisawatsuk (2006) are some of just a handful of papers that examine FDI to Asia using
aggregate data. However, all these papers only consider FDI flows from the Organisation for
Economic Co-operation and Development (OECD) economies as the source country, since
they use data from the OECD. In contrast, the focus of this paper is on FDI flows to
developing Asian economies from the main OECD economies as well as from other
developing Asian economies using data from UNCTAD.1
The paper is organized as follows: Section II discusses broad patterns and trends in FDI
flows to developing Asia using bilateral net FDI flows over the period 1990–2005. Sections III
and IV respectively outline and estimate an augmented gravity model framework to examine
the main determinants of FDI flows to the region using a panel dataset. We pay particular
attention to whether there are differences in the determinants of FDI flows from the non Asia-
Pacific OECD economies compared to those coming from intraregional flows, with particular
emphasis on the role of distance and time zone differences. The final section presents a
summary and a few concluding remarks. To preview the main conclusion, we find the
elasticity of distance to be greater for FDI from non-Asia Pacific OECD economies than for
intra-developing Asian flows. However, this difference disappears when one accounts for
differences in time zones in the manner of Stein and Daude (2006).
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The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.
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