AFTA and Regional Strengthening: The Effect of intra-ASEAN Trade on FDI Inflows

Abstract: his thesis investigates the effects of intra-ASEAN export flows on global FDI inflows into ASEAN member states. A panel dataset including all ten countries of the ASEAN is created to test these effects from 1992 to 2020. Linear regressions without and with fixed effects predict that intra-ASEAN exports have a positive and significant impact on FDI inflows into ASEAN countries. Furthermore, trade flows between the United States and China are used as an instrument for intra-ASEAN exports in a 2SLS estimation to test for a causal relationship between the correlations. However, the causal interpretation is not conclusive due to the weak explanatory power of the instrument. The thesis also predicts that the AFTA is an effective political instrument to increase FDI inflows into ASEAN member states.