Good Governance and Foreign Direct Investment in ASEAN

Abstract

The Association of Southeast Asian Nations (ASEAN) region has become one of the most sought-after foreign direct investment (FDI) destinations in recent years. However, there is still room for improvement. This research aims to study the importance of good governance for FDI inflows, along with other classical factors (market size, development level, trade openness, and human capital), in the ASEAN region from 2000 to 2022. Using the fixed effects panel data technique, the results show that the control of corruption exerts a positive and significant influence on FDI in ASEAN. Meanwhile, voice and accountability, though significant, still swayed FDI in the opposite direction, while political stability is found to be insignificant for FDI in ASEAN. Market size, development level, and human capital proved equally important in positively influencing FDI. Trade openness is significant but negatively associated with FDI. The key finding is that improving good governance factors like the control of corruption can play an imperative role in further enhancing the FDI attractiveness of ASEAN.