ASEAN Economic Performance, Institutional Effectiveness, and Foreign Direct Investment.

Foreign direct investment (FDI) is considered to be one of the most important forces of economic growth and globalization. Many ASEAN economies have only a small domestic market; they are heavily reliant on international trade and FDI. Recent studies on cross-border investment indicate the importance of domestic economic performance and institutional effectiveness (including government effectiveness, regulatory quality, rule of law and property rights protection) in attracting FDI. The result from a cross-national empirical analysis, in this study, also confirms the significant impact of macroeconomic performance and institutional factors on FDI flows into developing countries. In this paper, it is argued that, with the exception of Singapore, most ASEAN countries are afflicted with relatively poor institutions for good governance, with low government effectiveness, and poor regulatory quality and rule of law. This relatively poor institutional quality may exacerbate the effects of external threats. As higher economic growth and better economic integration in other regions may divert FDI flows into ASEAN countries, their appropriate response is to improve institutional quality so that the share of FDI will increase in the total FDI inflows. Improving the institutional environment among ASEAN member countries should, therefore, be an important goal of ASEAN economic integration. [ABSTRACT FROM PUBLISHER]