The impact of financial instability on foreign direct investment: Evidence from East Asia

This research article examines the impact of financial instability on foreign direct investment flows received by countries located in the East Asian region. This study comprises a sample of nine countries from the region that were the most successful ones in terms of inward FDI flows during the last several decades. A sample data covers the period from 1996 to 2017 due to available data for stock markets and simultaneously captures the dynamics of evolution of FDI inflows into the region by including two periods of recessions observed in the world economy. The thesis investigates several macroeconomic determinants of FDI such as market size, trade openness, infrastructure, agglomeration, and financial instability. By applying two methods of estimation for dynamic panel data model namely estimation techniques of GMM and Pooled Mean Group (PMG), the paper reveals that under system GMM financial instability was a prominent factor affecting influx of FDI, whereas, estimation conducted by PMG persistently demonstrates the insignificance of financial instability as a strong influencer of inward FDI flows.

• Foreign direct investment
• financial instability
• trade
• economic growth

Citation: 

Akhundzada, N. (2023). The impact of financial instability on foreign direct investment: Evidence from East Asia. ASERC Journal of Socio-Economic Studies, 6(2), 167-184.