COMPETITION AND COOPERATION FOR FDI IN ASEAN

Abstract

The ASEAN nations have recently been through a tough couple of years. Although the Southeast Asian countries have, in the past decade been a popular destination for Foreign Direct Investments (FDI) and a major beneficiary of the increased global FDI flows, the emergence of new economies like China, Indochina, Eastern Europe etc., has attracted huge flows of FDI away from ASEAN, causing its shares to fall. In addition, the onset of the financial crisis ruined the investment climate in ASEAN, further aggravating FDI inflows to the region. The main motivations behind this thesis are the reasons behind the formation of the ASEAN Investment Area, which was implemented in 1998 to promote ASEAN as a competitive and conducive environment for FDI. The impact of the financial crisis, global competition for FOi, and differences in the tax structures are few of the reasons that motivated the formation of the AIA. This thesis seeks to analyse and examine these issues as well as the challenges that the A/A will face in future. To analyze what are the implication of the changing global environment and increased competition on ASEAN's FDI flows, this thesis will start by examining global trends. After which, the impact of the Asian crisis and of increased competition from emerging economies, like China and India, will be examined. Although the effects of investment incentives are ambiguous, investment incentives has been one of the main tools used to attract FDI to this region. In evaluating the performance of investment incentives in ASEAN, a comparative analysis of the various investment policies, in particular tax incentives and foreign equity policies used in ASEAN will also be compared.

Finally, the AJA initiative will be introduced and the challenges it is likely to face will be identified.