Sources of FDI Flows to Developing Asia: Bilateral Data Analysis

Analyzing bilateral FDI flows data is far from being a straighforward exercise, as inflows and outflows data do not accurately match. While some source countries have relatively complete FDI outflows data, it is apparent that for many countries, source country data is incomplete or non-existent. Numerous practices of describing FDI data create bilateral discrepancies between FDI flows as reported by source and host countries, some of which can sometimes be quite large. Faced with these concerns, we drew inferences on FDI flows by examining FDI inflow data reported in the host economies, as they are relatively more complete and are available for all developing Asian economies under consideration. In other words, we focused on the sources of inflows rather than the destination of outflows.

Figure 1 [ PDF 46.5KB | 1 page ] highlights the period 1990–2004, during which, Japan has been the single largest investor into developing Asia, accounting for 17–18% of total flows, and showing an increase from 13–14% in 1990–1994. The US was the second largest investor in the region, accounting for 9% of total inflows, up from 4–5% in 1990–1994. The EU has averaged around 14% of total inflows over the period 1995–2004, while intra-developing Asian flows has accounted for an average of 35%, with a slightly declining trend over the last 15 years. The main EU sources of FDI flows to Asia have been the United Kingdom, Netherlands, and Germany. Intra-developing Asian flows have been largely from the People's Republic of China (PRC); Hong Kong, China; Singapore; and Taipei,China.

Table 1 [ PDF 14.3KB | 1 page ] summarizes the top 40 bilateral FDI flows to developing Asia for the last two subperiods. Flows from Hong Kong, China to the PRC, and vice versa, stand out in this regard. Part of this is due to round-tripping, which significantly inflates the amount of outward FDI from the PRC (Xiao 2004). Flows from Japan, the US, and Singapore to the PRC and Hong Kong, China also stand out. Also noteworthy are FDI flows from the US and Japan to the Republic of Korea, Malaysia, Thailand, and in particular, Singapore. Overall, FDI inflows are particularly pronounced between and within East Asian economies and Southeast Asia economies (Table 2 [ PDF 14.7KB | 1 page ]). India is the only South Asian country that enters the top 40 bilateral FDI flows to developing Asia.

While Japan, North America, and the EU-5 (i.e. France, Germany, Italy, Netherlands and UK) intraregional (Asian) economies, as well as Australia and New Zealand, have together constituted around 70% of total inflows to developing Asia over the last fifteen years, that still leaves a substantial portion of inflows unaccounted for. While regions such as Russia, Latin America, and the Middle East have invested in the region, they have been relatively small players to date.² A significant portion of FDI to the region is from offshore financial centers (OFCs) such as the British Virgin islands, Bermuda, Cayman islands, Mauritius, and Western Samoa. Insofar as some part of inflows from the OFCs involve FDI that originated from other Asian economies and are not intended for the originating country (i.e., transshipping as opposed to round-tripping), we may be undercounting the size of intra-Asian FDI flows.

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