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http://dx.doi.org/10.13106/jafeb.2021.vol8.no6.0587

The Relationship Between Foreign Direct Investment Inflows and Trade Openness: Evidence from ASEAN and Related Countries  

VO, Thi Quy (School of Business, International University, Vietnam National University)
HO, Huu Tin (Institute for Development and Research in Banking Technology, University of Economics and Law, Vietnam National University)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.6, 2021 , pp. 587-595 More about this Journal
Abstract
ASEAN countries have entered into many free trade agreements, and foreign direct investment (FDI) inflows have become the engine of economic growth of these countries. Intrigued by the situation, we conducted this research to examine the relationship between trade openness and FDI inflows to ASEAN countries with the moderation effect of free trade agreements (FTAs). Our research used panel data of 21 countries (including Vietnam) that are members of FTAs related to ASEAN countries from the World Bank dataset and reported on a country level from 1995 to 2019. First, the three econometric models, pooled OLS, fixed effects (FEM), and random effects (REM) were applied to test three research hypotheses. Next, the assumption of heteroskedasticity and autocorrelation was tested through White's test and Wooldridge's test, and resulting in that generalised least squares (GLS) was selected because it is an appropriate econometric model with the dataset. The research found the positive impact of trade openness and FTAs on FDI inflows significantly, and the moderating role of FTAs in the relationship between trade openness and FDI inflows significantly at 0.01 level. Our research findings contribute to validate the FDI theory. These results imply that to attract FDI inflows, FDI oriented governments should increase their economy's trade openness and join many free trade agreements.
Keywords
FDI Inflows; Free Trade Agreements; Trade Openness; ASEAN Countries; Moderation Effect;
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