Title: Dynamics of foreign direct investment in ASEAN-5: A vector autoregressive analysis
Authors: Rutcher Lacaza - University of the Philippines (Philippines) [presenting]
Stephen Jun Villejo - University of the Philippines (Philippines)
Abstract: A vector autoregressive (VAR) model was used to examine movements of foreign direct investment (FDI) of the ASEAN-5 countries (Indonesia, Malaysia, Philippines, Singapore, and Thailand) in relation to other macroeconomic variables particularly interest rate, inflation rate, exchange rate, and trade openness. There is an interrelationship in the dynamics of FDI among countries in the region. For the Philippines, interest rate and inflation rate has an immediate positive effect on foreign direct investment. FDI of Philippines has a contemporaneous substitution effect with the FDI of Thailand and a lagged complementary effect with Singapore. For Malaysia, the model is the same with that of Philippines although the significant coefficient of inflation rate is on the second lag. Both the FDI of Philippines and Singapore have a complementary effect with the FDI of Malaysia. For Thailand, trade openness and exchange rate were significant in the model. FDI of Thailand has a complementary effect with the FDI of Malaysia. Shocks on the significant macroeconomic variables have a significant effect on FDI at certain periods. The variance decomposition of all models shows that a significant proportion of the movements in FDI is due to shocks on the other variables especially at very short horizons.