The Determinants of Foreign Direct Investment in Selected ASEAN and East Asian Countries: Evidence from Panel Data Analysis, 2010–2024

Abstract

Foreign Direct Investment (FDI) has become an important driver of economic development, technology transfer, and regional competitiveness in ASEAN and East Asian countries. Nevertheless, previous empirical studies have produced inconsistent findings regarding the relative importance of macroeconomic variables and institutional factors in attracting foreign investment. This study aims to examine the effects of government expenditure, interest rates, exchange rates, net exports, and regulatory quality on FDI inflows across ten ASEAN and East Asian economies during the 2010–2024 period. The study employs balanced panel data consisting of 150 country-year observations obtained from international secondary databases. Panel data estimation is conducted using Common Effects, Random Effects, and Fixed Effects models, with Chow and Hausman tests indicating that the Fixed Effects Model is the most appropriate specification. The empirical results demonstrate that regulatory quality and government expenditure have positive effects on FDI inflows, whereas interest rates negatively affect foreign investment. Exchange rates and net exports exhibit relatively weak explanatory power, indicating that short-term macroeconomic variables are less influential once institutional factors are considered. These findings suggest that institutional quality, regulatory predictability, and efficient public expenditure play a more decisive role than conventional fiscal incentives in attracting sustainable foreign investment. The study contributes to the international investment literature by providing comparative evidence from ASEAN and East Asia and reinforcing the importance of an institutional political economy perspective in explaining FDI location decisions while offering practical guidance for policymakers seeking to improve long-term investment competitiveness.