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Volume :13 Issue : 2 2006      Add To Cart                                                                    Download

The Determinants of FDI Inflows: An ARDL Bounds Testing Approach

Auther : Suleiman W. Almasaied
Ibrahem Mohammed Albataneh

This paper empirically explores the joint impact of domestic investment, financial intermediation, human capital, exports and economic growth on the FDI inflow to the ASEAN. Both the short and long run movement of the FDI growth process are modeled during the 1968-2002 period using the most recently developed auto regressive distributed lag (ARDL) approach. The empirical results of this study can be summarized as: (i) the bound test suggests that there is existing long-run relationship among FDI and its determinants; (ii) the growth rate of GDP and domestic investment significantly encourage FDI inflows to ASEAN-5; (iii) the development level of financial sector and human capital are crucial for FDI inflows; (iv) outward-looking together with stable exchange rate policies contribute positively to FDI inflows; (v) the results reveal that the link between domestic investment and FDI is crucial for post financial crisis. All in all, our results suggest that it is worthwhile for authorities to encourage domestic as well as foreign capital to put back these countries on their pre-crisis growth paths.

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