What Drives Foreign Direct Investment in Asia and the Pacific?
The Asian Economic Integration Report is ADB’s annual report on Asia’s regional economic cooperation and integration, covering 48 regional members of the ADB and analyzing their regional as well as global economic linkages. It has two major chapters— (i) the progress in regional cooperation and integration (RCI), which provides the latest progress in economic outlook, trade and investment integration, financial integration, and people movement, and updates of subregional cooperation initiatives; and (ii) special theme chapter on RCI-related topics which could draw broad interest from policy makers and academia alike.
The theme chapter of this year’s report features policy drivers and economic factors that help to attract foreign direct investment (FDI) in Asia and the Pacific. FDI can take various forms depending on firms’ strategy: (i) investment in new assets (greenfield FDI); or (ii) mergers and acquisitions. Firms can also decide to enter the market to (i) avoid trade barriers and gain better access to local market (horizontal FDI); or (ii) lower the production costs by relocating different stages of production in the country with least cost (vertical FDI). Given that the beneficial impact of FDI is contingent on the type of FDI and the country context, it is important from a policy perspective to investigate how to attract the type of FDI most in line with the host economies’ development goals.
The Asia Regional Integration Center (ARIC) is an ongoing technical assistance project of the Economic Research and Regional Cooperation Department (ERCD). Following the 1997/98 Asian financial crisis and the contagion evident around the region, ADB was asked to use its knowledge-based expertise to help monitor the recovery and report objectively on potential vulnerabilities and policy solutions. With the ASEAN+3 process just starting, ADB provided technical assistance beginning in 1999—to create the Asia Recovery Information Center, the precursor to ARIC.
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