The impact of political stability on FDI? A panel analysis of ASEAN Economies
2024. Co-authored with Risolat Tashmatova.
The countries of the Association of South-East Asian Nations (ASEAN) are important recipients of foreign direct investment (FDI), accounting for 11.5% of all FDI inflows in the world prior to COVID. Several determinants of FDI have been studied extensively—while the effects of macroeconomic factors, such as trade openness and market size, are generally observed to be consistent across countries, the effects of institutional factors, such as corruption and regulations, are ambiguous. For the ASEAN countries in particular, no study has investigated the institutional aspect of political stability in relation to FDI in the period following the 2008 financial crisis. This study delineated the effect of perceptions of political stability on FDI inflows into ASEAN countries (excluding Myanmar) post-2008 and before the COVID pandemic. The study used panel data analysis with macroeconomic variables as controls to exploit the great diversity in development indicators of ASEAN countries. The results indicate that the perception of political stability has a significant and positive effect on FDI inflows in these countries but can explain only around 30% of the observed variation among ASEAN countries.