Political stability and FDI in the most competitive Asia Pacific countries

Abstract

Purpose Competitiveness is vital to attracting FDI into a country, which has led us to investigate the determinants of FDI in the top 15 most competitive countries in the Asia Pacific region. Design/methodology/approach We have analysed political stability alongside other commonly studied determinants of FDI. We have employed a panel data fixed-effect model on a 14-year sample data (2000-2013) involving the top 15 most competitive Asia Pacific countries. The Global Competitiveness Index was taken as the yardstick to identify these countries. We have used fixed effect, GMM-system, and Panel ARDL tests for robust results. Findings The GDP, trade openness and political stability positively influenced FDI inflows while inflation rate negatively impacted FDI inflows in the selected countries. Political stability was the most influential variable in the presence of other indicators. GDP, openness, and political stability exhibit significant long-run relationship with FDI inflows. Research limitations/implications To increase FDI flows, regulators should focus on building the image of the country, and possibly the region, by ensuring stable economic and political environment, maintaining macroeconomic stability through bi- and multi-lateral arrangements with neighbouring countries. Originality/value Regional relationships with neighbouring countries can be considered as the building blocks for attracting FDIs. These relationships can be strengthened based on liberal trade policies, openness in capital control, and cooperation in terms of political actions. One such recent issue in regional political cooperation include actions to reduce terrorism and corruption that help boost the confidence of the investors.