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Handbook of Research on Asian Business

Edited by Henry Wai-chung Yeung

The rise of Asia as an important region for global business has been widely recognized as one of the most significant economic phenomena in the new millennium. This accessible and comprehensive Handbook brings together state-of-the-art reviews of Asian business in an expansive range of areas including: business organizations; strategic management; marketing; state–business relations; business and development; and business policy issues.
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Chapter 13: Capital’s Search for Order: Foreign Direct Investment, Models and Hybrid Models of Social Order in Southeast Asia

Nicholas A. Phelps


Nicholas A. Phelps1 There may be good reasons why, in economic theory, nations should not compete with one another for capital (Krugman, 1996). The reality, however, is rather different, since ‘the combination of structural dependence and capital mobility means that governments at all levels . . . must compete with each other for investment’ (Thomas, 2000: 26). Reading much of the recent advocacy regarding foreign direct investment (FDI) policy and promotion, especially that circulating in the US and the UK, one might be forgiven for thinking that multinational enterprises (MNEs) entertain a remarkably limited set of criteria, when considering locations for their international investments. The sorts of policy advocacy emanating from Western oriented international organizations (IOs) and governments stress the establishment of open, stable, transparent and secure business environments within which the transaction costs facing MNEs are minimized. This is precisely the sort of macroeconomic stance adopted in the UK, where interventions on the micro scale of industrial policy have been avoided (Hood and Young, 1997), with the expectation that the UK economy could be opened up as a competitive space within the global economy (Wilkinson, 2000). The recent record regarding the contribution of FDI to UK’s economic performance is, however, disappointing, most of all in those subnational territories now most dependent on FDI (Phelps et al., 2003). At the other side of the world stand a set of East Asian national economic models, where the transactions costs facing FDI are rarely minimized, while additional costs are imposed as a result of...

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