Vol., No. 5 Inernaional Journal of Business and Managemen Foreign Direc Invesmen and Growh in ASEAN- Naions Yasmine Merican Universii Pura Malaysia Serdang, Selangor, Malaysia Tel: 9-879-9 E-mail: yasmine96@gmail.com Absrac The sudy esed he impac of FDI and Gross Domesic Invesmen on growh in Malaysia, Thailand, Indonesia, and he Philippines- significan FDI recipiens wihin he developing world in he las hree decades. The sudy s ime-series analysis employing he Auoregressive Disribuive Lag (ARDL) echnique suggess ha he FDI is beer han Domesic Invesmen for growh in Malaysia, Indonesia bu no for Thailand and he Philippines where he reverse is rue. Keywords: Economic growh, Foreign direc invesmen, Gross domesic invesmen, Neo-liberal heory, Dependency heory, Globalizaion. Background Amongs developing world naions, he ASEAN- naions-malaysia, Thailand, Indonesia, and he Philippines- have had a significan share of FDI inflows in he las hree decades which have been accompanied by high growh. There appears o be a relaionship beween economic growh and FDI inflows in all he four ASEAN naions. Decreases in FDI are normally followed sui by decreases in growh and vice-versa as illusraed by Table and Figures a hrough d. Thus, growh of he ASEAN- naions appears dependen upon FDI via mulinaionals and his dependence is hough o be especially risky agains he backdrop of China s curren lead as an FDI magne coupled wih India s poenial as a second magne in he near fuure which could siphon FDI away from he ASEAN- furher. Agains an uncerain landscape and he rheoric of he dependency lieraure ha FDI is no as good as Gross Domesic Invesmen in promoing growh, he main purpose of his sudy is o es wheher Gross Domesic Invesmen is indeed beer han he neo-liberal FDI in promoing growh as posulaed by dependency heoriss, criiques and deracors of neo-liberal heory as well as of he larger globalizaion process characerized by he liberalizaion of rade and invesmen. Exending he dependency argumen furher, i is posulaed ha growh driven by foreign eniies is no as susainable as growh generaed by domesic facors of producion since such growh depends on he robusness of foreign economies. In oher words, growh based on domesic producion facors is more susainable since domesic governmens are able o wield more conrol over hem as opposed o foreign ones. I is also unclear ha he ASEAN- economies deemed FDI-driven growh would be able o susain heir growh once his capial runs dry. In shor, i is unclear wheher ASEAN- economies are able o generae heir own echnology independen of he echnology associaed wih FDI o propel growh.. Theoreical lieraure The rend of a falling FDI which accompanies falling growh seems o lend some suppor o he heoreical perspecive of developmen by dependency heoriss, in paricular o ha of Sanos Srucuralis Model of Dependence which poins ou ha he growh in he periphery is very much subjeced o he growh in he core (Gosh,, Crane and Amawi, 99). Oher dependency heoriss such as Dixon and Boswell (996), have posulaed he concep of invesmen dependence based on he exen o which a counry s economy is peneraed and conrolled by FDI, which is referred o as peneraion ha is negaively relaed o growh raes in he long run. Dependency heoriss are far more concerned wih FDI han wih porfolio invesmen in heir measuremen of invesmen dependence. Theoriss and researchers sympaheic o dependency heory view invesmen dependence as a srucural feaure of a naional economy which gives some degrees of economic and poliical power o hose groups a he core. However, heoriss and researchers working in he framework of neoclassical economy and neo-liberalism view invesmen dependence as a mere flow of resources ino a counry and ha he growh raes of he ASEAN- naions make hem ideal poser children for he free-flow of rade and finance. 6
Inernaional Journal of Business and Managemen May, 9 Of equal imporance is he view by dependency heoriss ha he level of foreign invesmen o be no as good as domesic invesmen in generaing economic growh based on differenial produciviy. Differenial produciviy is he expeced resul of several underlying mechanisms of disariculaion in he forms of ax avoidance, less developmen of local enrepreneurship, inappropriae echnology, less profi reinvesmen, and less linkage o domesic business (Firebaugh, 99, p.9, Dixon and Boswell, 996, p. 55). Hence, while dependency heoriss do no dispue ha FDI in erms of inflows brings abou reurns, is reurns are expeced o be lesser han domesic invesmen.. Empirical Lieraure The firs lieraure surveyed is on he cross-naional evidence of he effecs of foreign invesmen and aid on economic growh by Bornschier, Chase-Dunn, and Rubinson (978). The sudy finds ha economic growh ends o be posiively relaed wih FDI flows bu ends o be negaive wih FDI socks and is independen of geographical region. For Asia, FDI socks show a significan negaive effec on growh bu flows only managed a small posiive effec (Bornschier, 98). Jansen (995) ess he impac of FDI on growh in Thailand afer an upsurge of FDI is found o be of a differen naure from he pas inflows. The experience of Thailand shows ha FDI helps o resore privae invesmen and growh and ha expor-oriened FDI conribues sharply o an increase in expor earnings. On he oher hand, FDI also leads o an even sharper increase in impor demand, so ha he curren accoun deerioraes and he exernal deb burden grows raher han declines. Alhough Jansen does no aribue FDI o cause exernal deb, i ses he moion an adjusmen process ha does lead o increased exernal borrowing. In shor, he pre-995 FDI inflow is boh expor oriened and impor inensive. Dixon and Boswell (996) sudy on he impac of boh FDI and Domesic Invesmen Flows on growh suppors dependency heory ha domesic invesmen flows are beer han FDI in generaing growh. The resuls are based on a panel-sudy for developing naions which essenially look a differenial produciviy of FDI and domesic invesmens. Sun (998) invesigaes he macroeconomic impac of FDI on China from 979 hrough 996. FDI has a significan role in promoing he economic growh of China hrough conribuing o domesic capial formaion, increasing expors and creaing new employmen. However, gross domesic invesmen is more robus han FDI in generaing growh in he Easern and Wesern regions of China. Hsiao and Shen () sudy is based on he Harrod-Domar's model. This model assumes ha FDI raises he produciviy of capial hrough improved compeiion, posiive echnological exernaliies, and acceleraed spillover effecs. Hsiao and Shen () find ha FDI increases GDP and he increase in GDP in urn aracs FDI. The nex lieraure surveyed is by Mencinger () who poses he quesion if FDI in developing ransiional economies enhance he economic growh of seleced Easern European counries during he pos-ransiion period, and if no, is reasons. Mercinger s correlaion coefficiens beween growh and corresponding FDI are negaive in seven ou of he eigh counries and remain posiive for Lihuania. Even pooled daa resul is a negaive correlaion coefficien. Mercinger s annual cross-secional regression beween growh and FDI obained a similar negaive resul. A similar negaive resul is obained by cross-secion daa for each year and hence, one can conclude ha here is a negaive correlaion beween growh and FDI in six ou of he eigh years wih 997 having a posiive sign and 998, regisering insignifican resuls (Mencinger, ). The final lieraure surveyed on growh is by Baliamoune-Luz (). Baliamoune-Luz regresses FDI agains growh and expors using ime-series daa. The sudy s null hypoheses are as follows: FDI drives growh; Expor drives growh. The findings of he sudy show here is a srong negaive correlaion beween he expor raio and economic growh in he pos-99 years which is he liberalized FDI era for Morocco. The wo null-hypoheses ha Baliamoune-Luz acceped are: Growh does no cause FDI; Growh does no cause expors. In addiion, FDI and expors have bi-direcional causaliy, apar from having a posiive impac from expors o economic growh. Growh is impaced by FDI boh direcly and indirecly.. Empirical Model Hence o es he posulaion of he neo-liberal and dependency heories on growh in he ASEAN- naions, he following model is proposed [Sahoo and Mahiyazhagan (), Sun (998), Borenzsein, Gregorio, Lee (998)]: Y DOM FDI EXPT HC () Y = Real Gross Domesic Produc Per Capia in (US) (995) Dollars DOM = Nominal Gross Domesic Invesmen in erms of % nominal GDP FDI = Nominal FDI inflows in erms of % nominal GDP EXPT = Nominal Expor of Goods and Services as of % nominal GDP HC = Adul Illieracy rae (%) 7
Vol., No. 5 Inernaional Journal of Business and Managemen Based on Neo-Liberalism heory, we expec:,, > < Based on dependency heory, we expec: The main aim of his model is o verify he posulaion of he dependency school ha in erms of level of invesmen impac on growh, FDI is no as good as Gross Domesic Invesmen. Furhermore, he model will also es if FDI and expors are correlaed wih growh in he ASEAN- naions. Thirdly, he model will also verify he posulaion of he dependency school ha he neo-liberal FDI increases expor dependency in he economy. Fourhly, he model will es if Human Capial Sock enhances growh in he ASEAN- naions. 5. Variables and Daa Growh, as he dependen variable, is measured by Gross Domesic Produc Per Capia in consan 995 prices using US dollars. The GDP Per Capia daa are from he World Bank Developmen Indicaors CD-ROM. Collecively, ASEAN naions have been among he mos imporan desinaions for FDI in he las wo decades (Abdul Rashid and Usmani, ). Foreign direc invesmen is ofen hough o conribue o growh hrough echnological progress (Borenzsein (998), Choe (), Li and Liu () and managerial skill (Abdul Rashid and Usmani, ). Boh he neo-liberal and dependency heories agree ha FDI inflows end o impac growh posiively. Hence, he null hypohesis ha FDI drives growh is esed. The FDI variable is nominal FDI inflows in erms of % nominal GDP. The FDI flows daa are from UNCTAD s online daabase. Because of daa limiaions, he level of FDI peneraion which requires he use of sock daa is no esed. Mos capial dependency research would suppor he view ha an invesmen of foreign capial will ordinarily reurn some produciviy improvemen bu a a lower level han would accrue from a comparable level of domesic invesmen (Dixon and Boswell, 996). Hence, he null hypohesis ha gross domesic invesmen brings a greaer yield o growh levels han would FDI is also esed in his sudy. Gross domesic invesmen will be measured in erms of % GDP in curren prices and sourced from he World Bank Developmen Indicaors CD-ROM. From he poin of view of dependency research, boh he FDI and Gross Domesic Invesmen measuremens reflec he level of invesmen in he ASEAN-. Dependency heoriss posulae ha foreign invesmen from he advanced capialis saes promoes expor and impor dependen forms of developmen (Jaffee, 986). Samir Amin (976) elaboraes ha he general condiion of exraversion -an excessively ouward-looking economic srucure finds is source no only in he evoluion of colonial rade paerns, bu also in he invesmen of foreign capial ino expor aciviies. Amin furher elaboraes ha while here is explici recogniion ha capial will be direced oward boh he primary produc and or manufacuring secors, which he laer is more relevan o he ASEAN- case, he ne effec will be a furher dependence on exernal markes. In opposiion o he dependency hesis on he sources of rade dependence, a long radiion in he neo-classical economics focuses on he naural limis and facor endowmens ha lead naions o depend on exernal markes. According o his perspecive, under a cerain se of condiions inernaional rade is no only raional bu opimally beneficial sraegy for meeing economic needs (Jaffee, 986). There are several posulaions on he precise economic and social consequences of rade dependence. Some argue ha a dependence on exernal rade hampers economic growh due o dramaic flucuaions in world marke prices and he inabiliy o make long-range economic plans, given he vagaries of an unconrolled exernal marke [Prebisch (959) in Jaffee (986)]. Ohers highligh he enclave naure of rade dependen economies and he subsequen lack of balanced and secorally ariculaed economic growh [Amin, (976) and Cardoso and Faleo (979) in Jaffee (986)]. Some economiss advocae expor-oriened sraegies as he bes means for overcoming underdevelopmen and simulaing growh [Krueger (978) in Jaffee (986)]. Kohpaiboon () bes capures he scenario for he ASEAN- naions by saing ha FDI beer affecs growh under an expor-promoing (EP) regime han an impor-subsiuion (IS) one because FDI as well as Gross Domesic Invesmen under an IS regime mosly akes place in secors characerized by high capial inensiy in producion where he hos counry does no have comparaive advanage. All he ASEAN- naions now emphasize an EP regime over an IS one. To demonsrae expor dependence, his sudy will measure expor in erms of he oal value of goods and services expressed % GDP in nominal erms sourced from World Developmen Indicaors CD-Rom. Human capial will be he rae of adul illieracy sourced from he World Bank Developmen Indicaors. I is inended o measure he basic educaional level of he sock of he populaion. Human capial sock enhances growh (Sun, 998). The model will be esimaed in he log form. 8
Inernaional Journal of Business and Managemen May, 9 6. Bounds Tes Approach Based on Pesaran e. al. modeling approach; he mainained assumpion ha he ime series properies of he variables included in Equaion () can be well be approximaed by a log-linear VAR (p) model is as follows: z p z i i () i Where z is he vecor of boh x and y where y, he dependen variable, is defined as E, and x = [ DOM FDI, EXPT, HC ], is he vecor marix which represens a se of explanaory variables. [ y, x ], is a ime rend variable, b i is a marix of VAR parameers for lag i. According o Pesaran e. al. (), y mus be I() variable, bu he regressor x can be eiher I() or I(). Developing he model furher: z z p p y ix () i i where is he firs difference operaor. Pariioning he long-run muliplier marix : yy xy The diagonal elemens of he marix are unresriced, and hence he seleced series can be eiher I() or I(). If =, hen y is I(). In conras, if, hen y is I(). yy yy The VECM procedure described above is imporan in he esing a mos one coinegraing vecor beween dependen variable y and a se of regressors x. The sudy s preferred model adhered o he assumpions of Pesaran e. al. () in Case III ha is unresriced inerceps and no rends. Afer imposing he resricions xy,, and, he growh level specificaion in erms of he unresriced error-correcion model (UECM): ln E HC 5 s 9 i EXPT ln E 6 i p ln E v i B HC yx xx ln DOM q 7 i u ln DOM..() FDI r 8 i EXPT FDI where is he firs-difference operaor, u is a whie noise disurbance erm. Equaion () can also be viewed as an ARDL order of (p, q, r, s, v).the srucural lags are deermined by using minimum Aikake s informaion crieria (AIC). In his case, he long-run elasiciy is derived by dividing each of he one lagged explanaory variable by he coefficien of he one lagged dependen variable. Afer obaining Equaion (), he Wald es (F-saisic) was compued o discern he long-run relaionship beween he concerned variables. The Wald es can be conduced by imposing resricions on he esimaed long-run coefficiens of, DOM, FDI, EXPT, HC, and GDP. The null and alernaive hypoheses are as follows: Ho: 5 (no long-run relaionship) Ha: 5 (a long-run relaionship exiss) The compued F-saisic value will be compared wih he criical values abulaed in Table CI (III) of Pesaran e al. (). If he compued F-saisic is smaller han he lower bound value, hen he null hypohesis is no rejeced, hen here is no long-run relaionship beween growh and is deerminans. Alernaively, if he compued F-saisic is greaer han he upper bound value, hen growh and is deerminans share a long-run level relaionship. However, if he compued F-saisic falls wihin hese bounds, he inference would be an inconclusive one. 7. Bounds Tes Resuls and Discussion The Bounds Tes was used on all models o invesigae he presence of a long run relaionship among he variables specified for each counry. In Table, he resuls of Pesaran e. al () bounds es obviously demonsraes ha he 9
Vol., No. 5 Inernaional Journal of Business and Managemen null hypohesis c()=c()=c()=c()=c(5)= agains is alernaive, c() c() c() c() c ( 5) is easily rejeced a he 5% confidence level for all ASEAN- naions. The compued F-saisic for Malaysia a. is greaer han he upper criical bound of.68 for he % significance level, and hence he null hypohesis of no coinegraion is rejeced a ha level. Similarly, Thailand s compued F-saisic of.9668 is greaer han he upper criical bound of.79 and he null hypohesis is rejeced a he 5% upper bound criical value. The compued F-saisic for Indonesia a 6.78 and he Philippines a.69 are all rejeced a he % upper bound criical value. Based on he es resuls, i is concluded ha here exiss a seady-sae long-run relaionship amongs Domesic Invesmen, FDI, Expors, Human Capial, and GDP Per Capia for Malaysia, Thailand, Indonesia, and he Philippines. In oher words, for Malaysia, Thailand, Indonesia, and he Philippines, hese variables do no move oo far away from each oher in he long-run. The compued resuls of he long-run elasiciies of he deerminans of GDP Per Capia are shown in Table. The esimaed resuls show ha for Malaysia, Domesic Invesmen, FDI, Expors, and Human Capial significanly and posiively influence he level of GDP Per Capia. Human Capial is said o have a posiive relaionship wih GDP Per Capia because he illieracy rae used in he sudy has he correc negaive sign which corresponds o a posiive sign had lieracy rae been used insead in he esimaion. This is rue of he sudy s oher hree ASEAN naions. The esimaed coefficiens imply ha a % increase in Domesic Invesmen, FDI, and Expors will lead o a rise in GDP Per Capia by.67%,. %, and.76% respecively. However, a % increase in he rae of illieracy (Human Capial) will lead o a decrease of GDP Per Capia by -.55%. The significanly posiive values for coefficiens,, conform o boh neo-liberal and dependency heories. The negaive value of he rae of adul illieracy (Human Capial) also conforms o neo-liberal and no conesed by dependency heoriss. However, he neo-liberal and dependency heoriss differ on heir posulaion of he size of and. A more robus coefficien for FDI as opposed o Domesic Invesmen means ha conribues more o growh han. Hence, FDI flows are beer han Domesic Invesmen flows in promoing growh in Malaysia which invalidaes he posulaion of FDI flows are no as good as Domesic Invesmen flows in promoing growh as hypohesized by he dependency side. As previously menioned, his posulaion comes under he level of invesmen argumen which is rheorical in dependency heory lieraure. This finding is suppored by Wong and Jomo (5) who sressed he imporance of FDI on he Malaysian economy. For Thailand, he esimaed resuls show ha only Domesic Invesmen, Expors, and Human Capial are significan deerminans of growh in he naion. As such, a % increase in Domesic Invesmen and Expors will lead o an increase in GDP Per Capia by.68 % and.775 % respecively. A % increase in adul illieracy rae will lead o a fall of -.76 % in GDP Per Capia. FDI is no significan in deermining growh in he model. The significanly posiive value for coefficien and he insignificance of validaes he hypohesis ha FDI is no as good as Domesic Invesmen in promoing growh. Hence, his finding lends suppor o he dependency school of hough and challenges he viewpoin ha capial is capial regardless of is origin as pu forh ime and again by he neoliberals (Chang, ). Similar o Malaysia, Indonesia s esimaed resuls show ha all four deerminans in he sudy significanly influence he level of growh. Subsequenly, a % increase in Domesic Invesmen, FDI, and Expors will lead o an increase by.97 %,.96 %, and.6 % respecively. Conversely, a % rise in he adul illieracy rae (Human Capial) will reduce growh by -.795 %. The larger coefficien of han ha of lends furher suppor o he neoliberal school. Indonesia s resul shows ha indeed FDI is beer han Domesic Invesmen in promoing growh. This finding conforms o Sjoholm () and Thee (5). In he case of he Philippines, only Domesic Invesmen and Human capial are significan in deermining he level of growh in he naion. A % increase in Domesic Invesmen will lead o a % increase in growh bu a % increase in he rae of adul illieracy will deeriorae growh by -. %. Unexpecedly, FDI and Expors are no significan in deermining growh. Hence, given ha is significan and is insignifican, hen he posulaion ha FDI is no as good as Domesic Invesmen is srongly suppored here. This finding naurally furher challenges he posulaion of he neo-liberal heoriss and conforms o Chang (). 8. Conclusion The sudy compares and conrass he goodness of wo ypes of invesmens namely domesic invesmen wih FDI in deermining growh for four ASEAN naions spanning from 97 o using he ARDL approach. ARDL developed by Pesaran e.al () is mos suiable for small sample size sudies such as his. Expors and he rae of illieracy were included o help explain he level of GDP per capia in each naion. Essenially, his sudy ess he posulaion of dependency heoriss ha FDI is no as good as Domesic Invesmen in promoing growh and conversely ha of neo-liberalism heoriss ha capial is capial regardless of origin and ha FDI brings abou many growh enhancing benefis o hos-counries. 5
Inernaional Journal of Business and Managemen May, 9 Several imporan conclusions may be deduced from he growh model s esimaion resuls. Firs, Gross Domesic Invesmen is common o all growh models in helping o explain growh levels. Second, FDI is significan in explaining growh levels only as far as Malaysia and Indonesia are concerned. Injecing more FDI as opposed o Domesic Invesmen will do much more o generae growh since he posulaion of he neo-liberals appears valid in Malaysia and Indonesia. Boh are grea showcases in advancing he neo-liberal argumen in harnessing globalizaion o promoe economic growh. Alernaively, any downurn in FDI would also mean decreases in growh levels for boh naions. Hence, i is also imporan ha domesic invesmen be promoed more aggressively for susainabiliy of economic growh (Ariff, 7). Thailand would appear o do beer in promoing growh by focusing on domesic invesmen. The same argumen appears valid for he Philippines. In andem wih he neo-liberals, dependency heoriss do no dispue he conribuion of FDI flows o growh bu he insignificance of FDI owards promoing growh in Thailand and he Philippines does no fall nealy in eiher school of hough. Perhaps, dependency heoriss ough o adop a more criical sance on FDI inflows by reviewing is auomaic associaion wih posiive growh given he emergence of a new body of empirical evidence which warrans a rehink of his posulaion (Mercinger, ). Thus, he alleged imporance of FDI via TNCs in he ASEAN region and he larger Eas Asian regional developmen can be challenged wih regards o Thailand and he Philippines. Third, expors are robus in deermining growh levels in all naions excep for he Philippines. Rasiah () finds exporing manufacuring o be significan o growh levels in Malaysia, Thailand and Indonesia. I is well-known ha here has been a srong FDI paricipaion in he leading expor manufacuring branches of elecric-elecronics and exile-garmen in Malaysia (Rasiah, ). However, expors appear no o be significan in elevaing growh levels in he Philippines. Bello (5) posulaes ha expor-oriened growh ha was pursued by Newly-Indusrialized Counries (NIC) is no longer possible especially for he Philippines in an era of remendous manufacuring overcapaciy and he resuling proecionism in developed-counry markes ha his has spawned. Even if developed-counry proecionism were no a problem, expor-oriened manufacuring would no be an advanageous sraegy given, he remendous advanage ha China has in labor coss (Bello, 5). Similar o Bello, Ariff (7) predics ha afer he Asian Financial Crisis debacle, he nex crisis is likely o winess a sronger ringgi and weaker exernal demand for boh primary commodiies and limi Malaysia s abiliy o expor ou of he crisis. Hence, he mainains ha FDI and expors can never be subsiues for domesic privae invesmen and consumpion expendiure. No surprisingly, lieracy is an imporan facor in deermining growh levels in all four naions. Hence, having a high percenage of lierae aduls would do much o boos FDI levels and i reinforces he need o assure qualiy educaion a he primary level alhough some ASEAN- governmens end o pay more aenion o he eriary educaion as opposed o primary. As such an educaion policy o ensure ha all primary school children are lierae which includes numerical lieracy would serve hese naions well in he long run. The Philippines had achieved universal primary enrollmen much earlier in he 97s, han he oher Souheas Asian naions. Unforunaely, here has been a marked decline in access and qualiy of educaion in he Philippines, and here exiss wide regional differences. I is esimaed ha wo hirds of primary school children do no complee primary educaion and rae of compleion varies by region. The level of aainmen of basic knowledge has also diminished. The school sysem is socially regressive since children from poor families have access only o public schools and suffer all he consequences regarding qualiy. Despie he fac ha i is governmen funded public school, parens are sill expeced o conribue o one hird of heir child s educaion [World Bank () in Pangesu ()]. Hence, all four naions should formulae educaional policies aimed a raising educaional aainmen o enhance human capial as well as growh (Te Velde, ). Acknowledgemen The auhor is mos graeful o Zulkornain Yusop, Law Siong Hook, and Zaleha Mohd. Noor, lecurers a Universii Pura Malaysia, for heir guidance. References Amin, S. (976). Unequal Developmen. New York: Monhly Press Review. Ariff, M. (7). Srong domesic secor crucial o resilience. The New Srais Times. 8 h July, 7. p.. Baliamoune-Luz (, April). Does FDI conribue o economic growh? Business Economics, p. 9-56. Bello, W. (5). The Ani-developmen sae: The poliical economy of permanen crisis in he Philippines. London: Zed Books. Bornschier, V. (98). Mulinaional corporaions and economic growh: A cross-naional es of decapializaion hesis. Journal of Developmen Economics, 7. p. 9-. Bornschier, V. & Chase-Dunn, C. (985). Transnaional corporaions and under-developmen. New York: Prager Publishers. 5
Vol., No. 5 Inernaional Journal of Business and Managemen Bornschier, V., Chase-Dunn, C. & Rubinson, R. (978). Cross-naional evidence of he effecs of foreign invesmen and aid on economic growh and inequaliy: A survey of findings and a reanalysis. American Journal of Sociology, 8 (), p. 65-68. Borenzsein e. al.(998). How does foreign direc invesmen affec economic growh? Journal of Inernaional Economics. 5. p. 5-5. Chang, H-J. (). Globalisaion, economic developmen, and he role of he sae. Penang, Malaysia: Third World Nework. Chase-Dunn, C. (975, December). The effecs of inernaional economic dependence on developmen and inequaliy: A cross-naional sudy. American Sociological Review,, p.7-78. Choe, J. I. (). Do foreign direc invesmen and gross domesic invesmen promoe economic growh? Review of Developmen Economics, 7(), p. -57. Crane, G. T., & Amawi, A. (99). The heoreical evoluion of inernaional poliical economy. New York: Oxford Universiy Press. Dixon, W. J. and Boswell T. (996, Sepember). Dependency, disariculaion, and denominaor effecs: Anoher look a foreign capial peneraion. American Journal of Sociology, (), p. 5-56. Firebaugh, G. (99, July). Growh Effecs of Foreign and Domesic Invesmen. The American Journal of Sociology, 98 (), p.5-. Ghosh, B. N., (). Dependency heory revisied. Hampshire: England: Ashgae Publishing Limied. Hsiao, C. & Shen, Y. (). Foreign direc invesmen and Economic growh: The imporance of insiuions and urbanizaion. Economic Developmen & Culural Change. 5(), p.88-896. The Universiy of Chicago. Kohpaiboon, A. (, December). Foreign rade regimes and he FDI-growh nexus: A case sudy of Thailand. The Journal of Developmen Sudies, (), p. 55-69. Jafee, D. (986). Foreign invesmen and rade dependence. The Sociological Quarerly, 7(), p.5-56. Jansen, K. (995). The macroeconomic effecs of direc foreign invesmen: The Case of Thailand. World Developmen, (), p.9-. Li, X., & Liu, X. (). Foreign direc invesmen and economic growh: An increasingly endogenous relaionship. World Developmen, (), p. 9-7. Mercinger, J. (). Does foreign invesmen always enhance economic growh? Kyklos, (56), p. 9-58. OECD (). Invesmen incenives and FDI in seleced Asean counries. Inernaional Invesmen Perspecives. [Online] Available: hp: //caliban.sourceoecd.org/vl=77875/cl=6/nw=/rpsv/~6675/vn/s5/p79.(rerieved from July,, ) Rasiah, R. (). Explaining growh, povery, and disribuion in Indonesia, Malaysia and Thailand. In A. R. Embong (Ed.),Globalisaion Culure & Inequaliies (p.5-66). Bangi, Malaysia: Penerbi UNIVERSITI KEBANGSAAN MALAYSIA. Soneman, C. (975, January). Foreign capial and economic growh. World Developmen, (), p. -. Sjoholm, F. (). The challenge of combining FDI and regional developmen in Indonesia. Journal of Conemporary Asia. (). p.8-9. Sun, H. (998, July). Macroeconomic impac of direc foreign invesmen in China: 979-96. World Economy, (5), p. 675-69. Te Velde, D.W. (). Governmen policies for inward foreign direc invesmen in developing counries: Implicaions for human capial formaion and income inequaliy. Paris, France: OECD Developmen Cenre. (Technical Paper No. 9). [Online] Available: hp://www.oecd.org/daaoecd/8//999.pdf. (Rerieved from December, 999) Thee, K. W. (5). The major channels of inernaional echnology ransfer o Indonesia: An assessmen. Journal of he Asia Pacific Economy,(), p. -6. Unied Naions Conference on Trade and Developmen(UNCTAD).Foreign Direc Invesmen Saisics.[Online].Available:hp://sas.uncad.org/fdi/eng/TableViewer/wdsdim/dimensionp.asp#.(Rerieved from Sepember 9, 5). Usmani, T. & Abdul Rashid, Z. (). FDI and economic developmen of Souheas Asia. Paper presened a he FEP seminar organised by Deparmen of Accouning and Finance, Faculy of Economics and Managemen, Universii Pura Malaysia. 5
Inernaional Journal of Business and Managemen May, 9 Pangesu, M. (). Povery and income inequaliy in developing counries. A policy dialogue on he effecs of globalizaion. Paris: OECD Developmen Cenre. Pesaran, M. H., Shin, Y. & Smih, R. J. (). Bounds esing approaches o he analysis of level relaionships. Journal of Applied Economerics, 6, p. 89-6. World Bank. (). World developmen indicaors. CD-ROM. Wong, H. K., and Jomo, K.S. (5, February). Before he sorm: The impac of foreign capial flows on he Malaysian economy, 966-996. Journal of he Asia Pacific Economy, ().p. 56-69. Table. ASEAN- FDI (Million) Dollars and Growh (GDP Per Capia) GDP Per Capia/ Year FDI 7 75 8 85 9 95 96 97 98 99 Malaysia FDI 9 Malaysia GDP Per Capia 9.5 Thailand FDI.8 Thailand GDP Per Capia 98. 5. 9 86. 85 85.6 59. 8 9. 9 8.9 89. 69. 5 69. 7 6 585 797 6 7 895 787 55 6.7 8.7. 6. 55 575 7 76. 58 55. 86.6 77. 7.7 8.7 6. 88.8 6. 5. 79. 97.5 Indonesia FDI 8 76 8 9 6 69 678-56 Indonesia GDP. 56. 5. 6. 8 6 88 75. Per Capia 8.6 6 9.7..7 7 Philippines FDI -. -6 55 577 68 6 78 75 5 98 Philippines GDP Per Capia 8. 56. 8 676. 59 566. 95 Source: World Bank World Developmen Indicaors () and Unied Naions Conference on Trade and Developmen (UNCTAD) Foreign Direc Invesmen Online Saisics. 76. 6 8.6 85. 5. 89. 6 85. 69.8 8.5-7 5 687. 7 7. 869. 5. 987. -55 78. 975. 9 69 9 8 87-79 695. 9. 5
Vol., No. 5 Inernaional Journal of Business and Managemen Table. Bounds Tes for Coinegraion Tes Null Hypohesis: No Coinegraion Compued F-saisic (Wald Tes): Malaysia :. Thailand :.9668 Indonesia : 6.78 Philippines :.69 Criical Value Lower Upper % significance level..68 5% significance level.6.79 % significance level.6.5 Decision: Rejec or Accep null hypohesis a 5 % significance level Noe: The criical value is aken from Pesaran e. al. (). Table C (iii) Case III. Unresriced inercep and no rend The above able demonsraes ha here exiss a long-run relaionship beween growh and each of is deerminans in he ASEAN- naions for he period surveyed. Table. Long-run Elasiciies Malaysia Thailand Indonesia Philippines Gross Domesic Invesmen.67**.68***.97**.** FDI.*.97.96*. Expors.76*.775**.6*.7 Human Capial -.55* -.76** -.795** -.*** Noe: * ** *** denoe significan a he %, 5%, and % significance levels respecively The above able illusraes he resuls of he coinegraion es for growh and is deerminans. The long-run elasiciy of each of he explanaory variable is calculaed by dividing he long-run coefficien of an explanaory variable wih he long-run coefficien of he dependen variable which in his case is he Growh variable and muliplying i wih he negaive erm. Normally he long-run coefficiens are larger han he shor-run coefficiens. However, in his sudy here are insances when he reverse is rue and his is he resul of he lag lenghs chosen for he shor-run period. 5
Inernaional Journal of Business and Managemen May, 9 Table. Resuls of he Augmened Dickey Fuller and Phillips-Perron Uni Roo Tess The above able shows * / ** as denoing significan a he % and 5% levels, respecively. 55
Vol., No. 5 Inernaional Journal of Business and Managemen Table 5. Malaysia: Unresriced Error Correcion Model Resuls Variable Coefficien Sd. Error Prob. LMGDPPC(-) -.668.9. LMDOM(-).9869.767. LMFDI(-).79.885.7 LMEXP(-).8.989.7 LMHC(-) -.5988.5. DUM.69.8.5 D(LMGDPPC(-)) -.965.978. D(LMGDPPC(-)) -.8857.8.8 D(LMDOM(-)).795.697. D(LMDOM(-)).96.97.6 D(LMDOM(-5)).79.57565. D(LMFDI(-)) -.6.7.9 D(LMFDI(-)) -.8988.6995.5 D(LMEXP(-)) -.767.97.58 D(LMHC(-)).68.8796. D(LMHC(-)) -.7776.969.8 C.7559.759.5 N=6 Adjused R-squared.85859 S.E. of regression.667 F-saisic.88 Prob(F-saisic).586 Tes-Saisics P-value Jarque-Bera Normaliy Tes.79.88 Breusch-Godfrey LM Tes (Lag ).969.679 ARCH Tes (Lag ).8766.59 Ramsey Rese (Lag ).8787.7686 Malaysia s long-run resuls in as presened in Table 5 show ha all he variables are significan a he 5% level wih he correc sign eiher in he neo-liberal or in he dependency school of hough. The F-saisic, which ess he overall significance of variables, jusifies he inclusion of all variables in he growh model. The R-squared as well as Adjused R-squared values sugges ha a leas over 8% of he variaions in growh he level is explained by he variables included in he model. Hence, he overall fi of he model is good. The model also passed all diagnosic ess specified in he same able which renders he long-erm esimaes of his model o be reliable. The significance of he long-run dummy variable suggess ha he economic downurn years have had an impac on Malaysia s economic performance. 56
Inernaional Journal of Business and Managemen May, 9 Table 6. Thailand: Unresriced Error Correcion Model Resuls Variable Coefficien Sd. Error Prob. LTGDPPC(-) -.559.558.7 LTDOM(-).5.666.9 LTFDI(-).8.7.6 LTEXP(-).6.56.6 LTHC(-) -.56.7.6 DUM -.86.769. D(LTGDPPC(-)).9598.69 D(LTGDPPC(-)).58.999.77 D(LTDOM(-)) -.6.58.5 D(LTDOM(-)) -.78.68.76 D(LTFDI(-)) -.665.6. D(LTEXP(-)) -.9959.96.8 D(LTHC(-)) -.65577.989.7 C.9.6.5 N=8 Adjused R-squared.8789 S.E. of regression.67 F-saisic.999 Prob(F-saisic).5 Tes-Saisics P-value Jarque-Bera Normaliy Tes.57.56 Breusch-Godfrey LM Tes (Lag ).689.5 ARCH Tes (Lag ).78589.9 Ramsey Rese (Lag ).8.559 Thailand s long-run esimaed resuls as in Table 6 show ha expors and he rae of illieracy are significan a he 5% level while Gross Domesic Invesmen is significan a he % level of significance. FDI however is no significan. The resuls have he correc signs in eiher he neo-liberal or he dependency school of hough. The F-saisic shows ha he overall model is very significan. The long-run dummy variable is significan a he % level and hence, reained in he equaion. The high R-squared and adjused R-squared sugges ha almos 8% of he variables in he equaion explains growh in Thailand. This model also passed all he diagnosic ess specified in he same able. 57
Vol., No. 5 Inernaional Journal of Business and Managemen Table 7. Indonesia: Unresriced Error Correcion Model Resuls Variable Coefficien Sd. Error Prob. LIGDPPC(-) -.7.6955.6 LIDOM(-).798.889.55 LIFDI(-).6596.99.8 LIEXP(-).977.8.99 LIHC(-) -.599.995.6 DUM -..9. D(LIGDPPC(-)) -.79.798. D(LIDOM(-)) -.796.68.95 D(LIFDI(-)) -.696.99967.5 D(LIFDI(-)) -.66998.6679.7 D(LIFDI(-)) -.7596.77.89 D(LIFDI(-)) -.67.7567.9 D(LIEXP(-)) -.56..76 D(LIHC(-)) -6.67.5597. D(LIHC(-)) -6.7958..57 C.97.68.9 N=7 Adjused R-squared.8869 S.E. of regression.6 F-saisic.5 Prob(F-saisic).8 Tes-Saisics P-value Jarque-Bera Normaliy Tes.966.85595 Breusch-Godfrey LM Tes (Lag ).6.8877 ARCH Tes (Lag ).97.86958 Ramsey Rese (Lag ).97.99757 Indonesia s long-run esimaed resuls indicae ha all variables are significan a he 5% level of significance as illusraed in Table 7. In fac, FDI and expors are significan a he % level of significance. The high significance of he long-run dummy variable srenghens is inclusion in he model. The variables have also he righ signs ha conform o eiher he neo-liberal or he dependency school of hough. The overall F-saisic shows ha he enire model does well in explaining growh in Indonesia. The R-squared and he Adjused R-squared indicae ha almos 9% of he variables in he model explain growh in Indonesia. This model also passed all diagnosics ess. 58
Inernaional Journal of Business and Managemen May, 9 Table 8. The Philippines: Unresriced Error Correcion Model Resuls Variable Coefficien Sd. Error Prob. LPGDPPC(-) -.7698.59. LPDOM(-).9.899.8 LPFDI(-).867.889.9 LPEXP(-).57.956.76 LPHC(-) -.69.798.57 DUM -.8.5.5 D(LPGDPPC(-)).7.6885. D(LPGDPPC(-)).6.8575.69 D(LPDOM(-)) -.896.79.6 D(LPDOM(-)) -.78.58.8 D(LPDOM(-)) -.95.86.9 D(LPEXP(-)) -.96.879.7 D(LPEXP(-)).776.69.7 D(LPHC(-)).59.767.8 C..696.68 N=8 Adjused R-squared.687 S.E. of regression.87 F-saisic 5.88667 Prob(F-saisic).6 Tes-Saisics P-value Jarque-Bera Normaliy Tes.8787.66788 Breusch-Godfrey LM Tes (Lag ).577.7585 ARCH Tes (Lag ).686.57 Ramsey Rese (Lag ).96.5976 The Philippines long-run esimaed resuls show ha all variables excep FDI and expors are significan a he % level as shown in Table 8. However, Gross Domesic Invesmen is he mos robus since i was significan a he 5%. The % significance level of he long-run dummy variable allows for is inclusion in he model. All variables have he correc signs and conform o eiher he neo-liberal or he dependency heories. The F-saisic s significance a he 5% level is an indicaion ha he enire model is good a explaining he level of growh in he Philippines. The R-squared and Adjused R-squared sugges ha a leas 68% of he variables in he model explain he growh level in he Philippines. This model is deemed reliable since i passed all diagnosics ess. 59
Vol., No. 5 Inernaional Journal of Business and Managemen 5 P ercenag e 5-5 7 75 8 85 9 95 96 97 98 99 Fdi Growh - Year Figure a. Malaysia FDI and Growh 5 Percenage 5-5 7 75 8 85 9 95 96 97 98 99 Fdi Growh - -5 Year Figure b. Thailand FDI and Growh 6
Inernaional Journal of Business and Managemen May, 9 5 Percenage 5-5 7 75 8 85 9 95 96 97 98 99 Fdi Growh - -5 Year Figure c. Indonesia FDI and Growh 8 6 Percenage - - -6-8 7 75 8 85 9 95 96 97 98 99 Year Fdi Growh Figure d. Philippines FDI and Growh The above illusrae FDI and Growh rends in he ASEAN- naions from 97 hrough. 6
Vol., No. 5 Inernaional Journal of Business and Managemen Bornschier e. al. (978). Sudy Model/Mehodology Dependen Variable Findings Y i FflowsI Capform GNP i i i96 Fsock I (OLS) GNP per capia growh rae FDI Flows + FDI Sock - Jansen (995) Y C pr C g I pr I pu X M (Coinegraion Technique) GDP growh rae FDI Flows + Expor +, Impor + Dixon and Boswell (996) Y FDI DOM ENERGY EXP 5 GNPPC 65 (OLS) GNP growh rae FDI Flows+ Domesic Flows ++ Sun (998) ln GDP ln DK ln DFI ln FK ln L (Kmena Model) Hsiao and Sh log( GDP ) a log( GDP ) () a log( FDI ) i Mercinger () (Three sage leas squares) rgdp a a FDI a FDI a GDP a j DUM j (Coinegraion Technique) a FDI GDP FDI Flows+ Domesic Flows ++ GDP FDI Flows+ GDP growh rae FDI Flows - Baliamoune-Luz () Y FDI Expors (Coinegraion Technique) GDP growh rae FDI Flows + Expors + Figure. Summary of Growh Models The above summarizes he growh models of he lieraure surveyed in he sudy 6