THE INFLUENCE OF MACROECONOMIC AND INSTITUTIONAL FACTORS ON FOREIGN DIRECT INVESTMENT IN SOUTH-EAST ASIAN COUNTRIES
DOI:
https://doi.org/10.5281/zenodo.17448275Keywords:
FDI, political stability, rule of law, interest rate, market capitalization of domestic companies, inflation.Abstract
This research seeks to determine the factors affecting FDI inflows into a country, analyzing institutional variablessuch as rule of law and political stability rating and macroeconomic and fnancial indicators such as inflation, interest
rates, and market capitalization of domestically listed companies. Utilizing panel data for 3 ASEAN countries (Malaysia,
Indonesia, Singapore), the study performed fxed OLS regression analysis using Stata 18.0, and the output model shows
a statistically signifcant explanatory power with R squared of 0.0604. Main fndings are inflation (p = 0.009), market
capitalization rate (p = 0.000), and interest rate (p = 0.003) have statistically signifcant positive effects on FDI, market
capitalization rate being the strongest one affecting FDI. While political stability and rule of law are theoretically signifcant,
the data shows weak influence of these variables on FDI. These results suggest that policymakers should prioritize
fnancial incentives and develop good fnancial infrastructure should they want to attract more FDI.
References
World Bank. (2020). World development indicators. https://data.worldbank.org
International Monetary Fund. (2021). World economic outlook: Global growth and investment flows. https://www.imf.
org
Sachs, J. D., Warner, A., Åslund, A., & Fischer, S. (1995). Economic Reform and the Process of Global Integration.
Brookings Papers on Economic Activity, 1995(1), 1–118. https://doi.org/10.2307/2534573
North, D. C. (1990). Institutions, institutional change and economic performance. Cambridge university press.
Sarmidi, T. Bahri, E. N. A., Nor, A. H. S. M., Nor, N. H. H. M.(2017). Foreign direct investment, fnancial development
and economic growth: a panel data analysis. Jurnal Pengurusan (UKM Journal of Management), 51(2017), 11-24.
https://doi.org/10.17576/pengurusan-2018-51-02
Le, A.N.N., Pham, H., Pham, D.T.N. et al. Political stability and foreign direct investment inflows in 25 Asia-Pacifc
countries: the moderating role of trade openness. Humanit Soc Sci Commun 10, 606 (2023). https://doi.org/10.1057/
s41599-023-02075-1
Bagheri, O., Khodadousti, M., Ghahrood, M. L., & Sadabadi, S. M. (2016). The effect of interest rate and inflation on
the net inflow of foreign direct investment in Iran and China. http://www.science-gate.com/IJAAS.html
OLANIYI, T. A., OYEDOKUN, G. E., & AJAYI, R. O. (2019). Tax policy incentives on foreign direct investment in
Nigeria. Fountain University Osogbo Journal of Management, 3(3). https://management.fountainjournals.com/index.
php/ojm/article/view/82/66
Ebiringa, O. T., & Emeh, Y. (2013). Determinants of foreign direct investment inflow: A focus on Nigeria. European
Journal of Business and Management, 5(24), 41-52. ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Nizam, I., & Hassan, Z. (2018). The impact of good governance of foreign direct investment inflows: a study on
the South Asia region. International Journal of Accounting and Business Management, 6(1), 66-79 DOI:10.24924/
ijabm/2018.04/v6
AFOLABI, L. O., & ABU BAKAR, N. A. (2016). Causal Link between Trade, Political Instability, FDI and Economic
Growth – Nigeria Evidence. Journal of Economics Library, 3(1), 100–110. https://doi.org/10.1453/jel.v3i1.635 https://
journals.econsciences.com/index.php/JEL/article/view/635/797
Rahman, A. K. M. A. (2024). Impact of account, transparency, and accountability indicators on economic growth: Evidence
from South Asian countries. Journal of Ekonomi, 6(2), 96-105. https://doi.org/10.58251/ekonomi.1514374
Alfaro, L., Chanda, A., Kalemli-Ozcan, Ş., & Sayek, S. (2010). Does foreign direct investment promote growth?
Exploring the role of fnancial markets on linkages. Journal of Development Economics, 91(2), 242–256. https://doi.
org/10.1016/j.jdeveco.2009.09.004
Bruno, M., & Easterly, W. (1998). Inflation crises and long-run growth. Journal of Monetary Economics, 41(1), 3–26.
https://doi.org/10.1016/S0304-3932(97)00063-9
Busse, M., & Hefeker, C. (2007). Political risk, institutions and foreign direct investment. European Journal of Political
Economy, 23(2), 397–415. https://doi.org/10.1016/j.ejpoleco.2006.02.003
De Mooij, R. A., & Ederveen, S. (2008). Corporate tax elasticities: A reader’s guide to empirical fndings. Oxford Review
of Economic Policy, 24(4), 680–697. https://doi.org/10.1093/oxrep/grn033
Fischer, S. (1993). The role of macroeconomic factors in growth. Journal of Monetary Economics, 32(3), 485–512.
https://doi.org/10.1016/0304-3932(93)90027-D
Globerman, S., & Shapiro, D. (2002). Global foreign direct investment flows: The role of governance infrastructure.
World Development, 30(11), 1899–1919. https://doi.org/10.1016/S0305-750X(02)00110-9
Levine, R., & Zervos, S. (1998). Stock Markets, Banks, and Economic Growth. The American Economic Review, 88(3),
–558. http://www.jstor.org/stable/116848
Zahid, M. . (2018). Economic Misery, Exchange Rate, Interest Rate, and Foreign Direct Investment: Empirical Evidence
from Pakistan. Journal of Policy Options, 1(2), 81-95. https://resdojournals.com/index.php/jpo/article/view/34
