Trends and Patterns of Foreign Direct Investments in Asia

Abstract

This paper examines foreign direct investment (FDI) in developing Asia over the past three decades with emphasis on two key issues: the implications of the ongoing process of international production fragmentation and the alleged ‘crowding out’ effect of China’s rise as a major host to FDI on the other countries in the region. The evidence suggests that assembly processes within vertically integrated global industries (in particular, electrical goods and electronics) has gained prominence over the past two decades as the major area of attraction for foreign investors in the region. Contrary to the popular crowding out fear, China’s rise as a major assembly centre within global production networks seems to have added further dynamism to region-wide multinational enterprise (MNE) operations in the regions. A key policy inference from our analysis is that, in designing policies of outward-oriented development, investment and trade policies must be considered together as co-determinants of the location of production and patterns of trade.