Journal of Korea Trade

Korea Trade Research Association (한국무역학회)
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Importance of Political Elements to Attract FDI for ASEAN and Korean Economy

  • Teeramungcalanon, Monthinee (Pridi Banomyong International College, Thammasat University) ;
  • Chiu, Eric M.P. (Graduate Institute of National Policy and Public Affairs, National Chung-Hsing University) ;
  • Kim, Yoonmin (Department of Economics and Finance, Keimyung University)
  • Received : 2020.09.12
  • Accepted : 2020.12.15
  • Published : 2020.12.31
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Abstract

Purpose - Recent empirical studies have shown that FDI is expected to be strongly associated with democratic governance, political stability, and sound macroeconomic conditions of the host country. We attempt to take it a step further to see if governments implement a major change in institutional characteristics, will the institutional reform toward better governance have a substantive effect in enhancing FDI inflows. This paper thus aims to analyze the importance of good governance as an important factor in the attractiveness of FDI inflows in ASEAN+3 (Korea, China, Japan) countries. Design/methodology - To determine the effects of good governance on FDI inflows across ASEAN+3 countries recorded between 1996-2018, the Worldwide Governance Indicators (WGI) are used to investigate the impact of good governance on FDI inflows. The model has been estimated by using fixed effects to show the robustness of the results. Findings - Our main findings can be summarized as follows: Political Stability, Rule of Law, and Voice and Accountability have a statistically significant impact on the inflow of FDI in the ASEAN+3 Countries, especially for Korean economy. Moreover, GDP growth continue to exert their positive influence. However, Regulatory Quality, Government Effectiveness and Control of Corruption, though equally important, are insignificant to attract FDI inflows. The key finding is that good governance has a significant impact on inward FDI in the ASEAN+3 countries. Originality/value - Existing studies focus on the impact of political factors on FDI across countries. This paper instead attempts to investigate which type of good governance is the most important in promoting FDI inflows across ASEAN+3 countries, which is essential for multinationals to consider when choosing a foreign site as a possible FDI destination.

Keywords

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