Regional Integration and Intra-Regional FDI - The case of ASEAN

Abstract: During the past decades the interest of what effect Regional Integration Agreements (RIA’s) have on Foreign Direct Investment (FDI) flow have been increasing. Previous studies have mainly focused on trade effects of RIA’s, which has left scope of studies for FDI effect. The aim of this paper is to examine whether the ASEAN Investment Area (AIA) Agreement, which was concluded in 1999, have affected the increased intra regional Foreign Direct Investment (FDI) flow among ASEAN countries. The gravity model is used in order to perform a panel data analysis and examine the effect of intra regional FDI in ASEAN, covering the period from 1990 to 2012. Only six of ten countries are included in the dataset due to data limitation problem. The result indicates that the completion of AIA have not had any significant effect on intra-FDI flows among the ASEAN countries that are included in the sample. This result may indicate that the included countries in the sample already had a maintained investment flow between each other before the time of the implementation of AIA.