The Economies of Southeast Asia, Second Edition
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The Economies of Southeast Asia, Second Edition

Before and After the Crisis

Jose L. Tongzon

This updated and fully revised second edition provides a comprehensive examination of issues of paramount importance for Southeast Asian economies including: the economic implications of the 1997 Asian crisis for both older and newer members of ASEAN; the role of government and FDI in ASEAN economic growth and development; trade patterns with the US, Japan and the EU and the economic implications of China’s accession to the WTO for ASEAN countries; the environmental consequences of industrialisation and growth; the emergence of economic growth triangles and their contribution to ASEAN growth and regional cooperation; the prospects and challenges of ASEAN economic cooperation before and after the crisis; and the key challenges facing ASEAN member countries in the aftermath of the crisis.
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Chapter 9: Role of foreign direct investment (FDI) in ASEAN

Jose L. Tongzon


We have seen previously that foreign direct investment (FDI) in the form of MNCs has played a significant role in ASEAN5 economic development by providing the required capital, technology and access to the external markets through their international marketing networks. This chapter will discuss in more detail the benefits and costs associated with FDI, and the policies adopted by the ASEAN5 countries to maximize the benefits of FDI and counteract its potential negative consequences. 9.1 FOREIGN DIRECT INVESTMENT Foreign direct investment is differentiated from other forms of investment by the former’s ability to have a direct control over the invested capital. Usually in the form of multinational corporations (MNCs), foreign investors are driven to invest overseas due to their possession of superior technology or some type of comparative advantage, to maintain international competitiveness in the midst of rising production costs at home, or/and to counter certain moves of their rivals. 9.1.1 Forms of Foreign Direct Investment The activities of MNCs may take the form of horizontal integration in which case large corporations open new subsidiaries worldwide, or one or several existing firms competing in the host country may be bought up by a large international corporation, and competition is reduced and market divided in oligopolistic fashion. Horizontal integration may be domestic market-oriented or export-oriented investments. For example, Toyota setting up an assembly plant in ASEAN is a domestic market-oriented investment whereas Sumitomo’s chemical complex in Singapore is an export-oriented one. They may also take the form of vertical integration by...

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