Beyond Macroeconomic Stability Dynamic Determinant of Foreign Direct Investment in ASEAN

Abstract

This study aims to analyze the determinants of Foreign Direct Investment (FDI) in ASEAN countries during the period 2005–2024. This study is motivated by the important role of FDI as a source of development financing, technology transfer, and regional integration in the global value chain. Different from previous research that tended to be partial, this study integrates macroeconomic, financial, human resources, and economic globalization factors in one empirical framework. The methods used are static panel data through Fixed Effect Model (FEM) and Random Effect Model (REM), as well as dynamic panel data using the Generalized Method of Moments (GMM) to capture investment persistence and address potential endogeneity. The results show that economic growth, exports, and labor productivity have a positive effect on FDI. The FDI lag variable is significant across all dynamic models, indicating the persistence of foreign investment in ASEAN. In contrast, inflation, exchange rates, and interest rates show inconsistent influences. These findings confirm that macroeconomic stability remains important, but it is no longer enough to be a major factor in attracting investment. The quality of the workforce, production capacity, and integration in global production networks increasingly determine the attractiveness of FDI in ASEAN.