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30/11/2024
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Ngo, M. T. (2024). Developmental state and FDI attraction: a cross-country perspective on China, Singapore, and Vietnam. Journal of International Economics and Management, 24(3), 25-41. https://doi.org/10.38203/jiem.024.3.0092
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Developmental state and FDI attraction: a cross-country perspective on China, Singapore, and Vietnam
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Abstract
This study investigates the role of the developmental state in attracting foreign direct investment (FDI) in three Asian countries over short-term and long-term periods. The analysis focuses on three key dimensions of the developmental state: infrastructure investment, economic freedom, and human development. Empirical research was conducted using a sample from China, Vietnam, and Singapore, employing the vector error correction model from 1990 to 2021. This study highlights the developmental state’s role as a specific framework for economic planning and management, particularly in attracting FDI in these three countries. Furthermore, it underscores the strategic nature of FDI acquisition, advocating a long-term perspective and the implementation of a diverse range of policies. The research results indicate that the influence of the developmental state on FDI attraction in these countries varies across short- and long-term periods. Significantly, these variations are not correlated with the economic systems of each country. The evidence regarding the growth-enhancing effects of FDI has significant implications for policy design, emphasizing the need for policies focusing on economic liberalization and investments in infrastructure and human resources. Policies should concentrate on creating favorable conditions for attracting FDI.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Keywords
FDI, Developmental state, Economic freedom
References
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Amsden, A.H. (1989), Asia’s Next Giant: South Korea and Late Industrialization, Oxford University Press, New York.
Antalóczy, K., Birizdó, I. and Sass, M. (2022), “Local investment promotion in a Hungarian medium-sized town and the implications of the COVID pandemic”, Regional Statistics, Vol. 12 No. 1, pp. 27-50.
Anwar, S. and Nguyen, L.P. (2010), “Foreign direct investment and economic growth in Vietnam”, Asia Pacific Business Review, Vol. 16 No. 1-2, pp. 183-202.
Ayyagari, M. and Kosová, R. (2010), “Does FDI facilitate domestic entry? Evidence from the Czech Republic”, Review of International Economics, Vol. 18 No. 1, pp. 14-29.
Azman-Saini, W.N.W., Baharumshah, A.Z. and Law, S.H. (2010), “Foreign direct investment, economic freedom and economic growth: international evidence”, Economic Modelling, Vol. 27 No. 5, pp. 1079-1089.
Bagchi, A.K. (2000), “The past and the future of the developmental state”, Journal of World-Systems Research, Vol. 6 No. 2, pp. 398-442.
Beeson, M. (2004), “The rise and fall (?) of the developmental state: the vicissitudes and implications of East Asian interventionism”, in Low, L. (Ed.), Developmental States: Relevancy, Redundancy or Reconfiguration, Nova Science Publishers, New York, pp. 29-40.
Beeson, M. and Pham, H.H. (2012), “Developmentalism with Vietnamese characteristics: the persistence of state-led development in East Asia”, Journal of Contemporary Asia, Vol. 42 No. 4, pp. 539-559.
Bengoa, M. and Sanchez-Robles, B. (2003), “Foreign direct investment, economic freedom and growth: new evidence from Latin America”, European Journal of Political Economy, Vol. 19 No. 3, pp. 529-545.
Borensztein, E., De Gregorio, J. and Lee, J.-W. (1998), “How does foreign direct investment affect economic growth?”, Journal of International Economics, Vol. 45 No. 1, pp. 115-135.
Caves, R.E. (1971), “International corporations: the industrial economics of foreign investment”, Economica, Vol. 38 No. 149, pp. 1-27.
Chanegriha, M., Stewart, C. and Tsoukis, C. (2020), “Testing for causality between FDI and economic growth using heterogeneous panel data”, The Journal of International Trade & Economic Development, Vol. 29 No. 5, pp. 546-565.
Ciftci, C. and Durusu-Ciftci, D. (2022), “Economic freedom, foreign direct investment, and economic growth: the role of sub-components of freedom”, The Journal of International Trade & Economic Development, Vol. 31 No. 2, pp. 233-254.
Colen, L., Maertens, M. and Swinnen, J. (2008), “Foreign direct investment as an engine for economic growth and human development: a review of the economic arguments and empirical evidence”, Working Paper No. 16, Leuven Centre for Global Governance Studies, Leuven.
Csaba, L. (2020), “China at the crossroads”, Acta Oeconomica, Vol. 70 No. S, pp. 5-14.
Dunning, J.H. (2000), “Globalization and the theory of MNE activity”, in Hood, N. and Young, S. (Eds.), The Globalization of Multinational Enterprise Activity and Economic Development, Palgrave Macmillan, London, pp. 21-52.
Dunning, J.H. and Lundan, S.M. (2008), Multinational Enterprises and the Global Economy, 2nd Edition, Edward Elgar Publishing Inc., Massachusetts.
Fan, W. and Hao, Y. (2020), “An empirical research on the relationship amongst renewable energy consumption, economic growth and foreign direct investment in China”, Renewable Energy, Vol. 146, pp. 598-609.
Farole, T. and Winkler, D. (2014), Making Foreign Direct Investment Work for Sub-Saharan Africa: Local Spillovers and Competitiveness in Global Value Chains, World Bank Publications, Washington D.C.
Gentle, P. (2017), “Women in Southeast Asia: Myanmar, Cambodia, Laos, Thailand, Vietnam, Indonesia, Singapore, Timor, Philippines, Malaysia, Brunei; Essential trade: Vietnamese women in a changing marketplace”, Asia Pacific Business Review, Vol. 23 No. 5, pp. 735-737.
Granger, C.W.J. and Newbold, P. (2014), Forecasting Economic Time Series, 2nd Edition, Academic Press, USA.
Hayes, A.F. and Bolin, J.H. (2014), “Review of introduction to mediation, moderation, and conditional process analysis: a regression-based approach”, Journal of Educational Measurement, Vol. 51 No. 3, pp. 335-337.
Herzer, D., Klasen, S. and Nowak-Lehmann, D.F. (2008), “In search of FDI-led growth in developing countries: the way forward”, Economic Modelling, Vol. 25 No. 5, pp. 793-810.
Javorcik, B.S. (2004), “Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages”, American Economic Review, Vol. 94 No. 3, pp. 605-627.
Johnson, C. (1982), MITI and the Japanese Miracle, Stanford University Press, California.
Kamaly, A. (2002), “Evaluation of FDI flows into the MENA region”, Economic Research Forum Working Paper, Economic Research Forum, Cairo.
Kheng, V., Sun, S. and Anwar, S. (2017), “Foreign direct investment and human capital in developing countries: a panel data approach”, Economic Change and Restructuring, Vol. 50 No. 4, pp. 341-365.
Kim, P.H. and Li, M. (2014), “Injecting demand through spillovers: foreign direct investment, domestic socio-political conditions, and host-country entrepreneurial activity”, Journal of Business Venturing, Vol. 29 No. 2, pp. 210-231.
Knight, J.B. (2014), “China as a developmental state”, The World Economy, Vol. 37 No. 10, pp. 1335-1347.
Korle, K., Amoah, A., Hughes, G., Pomeyie, P. and Ahiabor, G. (2020), “Investigating the role of disaggregated economic freedom measures and FDI on human development in Africa”, Journal of Economic and Administrative Sciences, Vol. 36 No. 4, pp. 303-321.
Liu, R., Kang, Y. and Zhang, J. (2021), “Ideological taboos, entry barriers, and FDI attraction: evidence from China”, Journal of Asian Economics, Vol. 76, 101365.
Lu, W., Kasimov, I., Karimov, I. and Abdullaev, Y. (2020), “Foreign direct investment, natural resources, economic freedom, and sea-access: evidence from the commonwealth of independent states”, Sustainability, Vol. 12 No. 8, 8.
Meier, N. (2018), China - The New Developmental State?: An Empirical Analysis of the Automotive Industry, Peter Lang International Academic Publishers, Frankfurt.
Morshed, N. and Hossain, M.R. (2022), “Causality analysis of the determinants of FDI in Bangladesh: fresh evidence from VAR, VECM and Granger causality approach”, SN Business & Economics, Vol. 2 No. 7, 64.
Mudambi, R., Navarra, P. and Delios, A. (2013), “Government regulation, corruption, and FDI”, Asia Pacific Journal of Management, Vol. 30 No. 2, pp. 487-511.
Muhammad, S. and Mohammad, M.R. (2012), “The dynamic of financial development, imports, foreign direct investment and economic growth: cointegration and causality analysis in Pakistan”, Global Business Review, Vol. 13 No. 2, pp. 201-219.
Nguyen, Q.K. and Yang, Z. (2020), “Ownership structure and bank risk-taking in ASEAN countries: a quantile regression approach”, Cogent Economics & Finance, Vol. 8 No. 1, 1809789.
Pavlínek, P. (2012), “The internationalization of corporate R&D and the automotive industry R&D of East-Central Europe”, Economic Geography, Vol. 88 No. 3, pp. 279-310.
Pavlínek, P., Allez-Aller, R., Gil-Canaleta, C. and Ullibarri, M. (2017), “Foreign direct investment and the development of the automotive industry in Eastern and Southern Europe”, ETUI Research Paper - Working Paper 2017.03, European Trade Union Institute, Brussels.
Pearson, D., Nyonna, D. and Kim, K.-J. (2012), “The relationship between economic freedom, state growth and foreign direct investment in US states”, International Journal of Economics and Finance, Vol. 4 No. 10, pp. 140-146.
Singh, D. and Gal, Z. (2020), “Economic freedom and its impact on foreign direct investment: global overview”, Review of Economic Perspectives, Vol. 20 No. 1, pp. 73-90.
Tang, C.F., Abosedra, S. and Naghavi, N. (2021), “Does the quality of institutions and education strengthen the quality of the environment? Evidence from a global perspective”, Energy, Vol. 218, 119303.
Wade, R. (1990), Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization, Princeton University Press, New Jersey.
White, G. (1984), “Developmental states and socialist industrialisation in the third world”, The Journal of Development Studies, Vol. 2 No. 1, pp. 97-120.
Wonglimpiyarat, J. (2013), “Innovation financing policies for entrepreneurial development - Cases of Singapore and Taiwan as newly industrializing economies in Asia”, The Journal of High Technology Management Research, Vol. 24 No. 2, pp. 109-117.
Xu, C. (2011), “The fundamental institutions of China’s reforms and development”, Journal of Economic Literature, Vol. 49 No. 4, pp. 1076-1151.
Zheng, J. and Sheng, P. (2017), “The impact of foreign direct investment (FDI) on the environment: market perspectives and evidence from China”, Economies, Vol. 5 No. 1, 1.
Ahmad, F., Draz, M.U. and Yang, S.-C. (2018), “Causality nexus of exports, FDI and economic growth of the ASEAN5 economies: evidence from panel data analysis”, The Journal of International Trade & Economic Development, Vol. 27 No. 6, pp. 685-700.
Amsden, A.H. (1989), Asia’s Next Giant: South Korea and Late Industrialization, Oxford University Press, New York.
Antalóczy, K., Birizdó, I. and Sass, M. (2022), “Local investment promotion in a Hungarian medium-sized town and the implications of the COVID pandemic”, Regional Statistics, Vol. 12 No. 1, pp. 27-50.
Anwar, S. and Nguyen, L.P. (2010), “Foreign direct investment and economic growth in Vietnam”, Asia Pacific Business Review, Vol. 16 No. 1-2, pp. 183-202.
Ayyagari, M. and Kosová, R. (2010), “Does FDI facilitate domestic entry? Evidence from the Czech Republic”, Review of International Economics, Vol. 18 No. 1, pp. 14-29.
Azman-Saini, W.N.W., Baharumshah, A.Z. and Law, S.H. (2010), “Foreign direct investment, economic freedom and economic growth: international evidence”, Economic Modelling, Vol. 27 No. 5, pp. 1079-1089.
Bagchi, A.K. (2000), “The past and the future of the developmental state”, Journal of World-Systems Research, Vol. 6 No. 2, pp. 398-442.
Beeson, M. (2004), “The rise and fall (?) of the developmental state: the vicissitudes and implications of East Asian interventionism”, in Low, L. (Ed.), Developmental States: Relevancy, Redundancy or Reconfiguration, Nova Science Publishers, New York, pp. 29-40.
Beeson, M. and Pham, H.H. (2012), “Developmentalism with Vietnamese characteristics: the persistence of state-led development in East Asia”, Journal of Contemporary Asia, Vol. 42 No. 4, pp. 539-559.
Bengoa, M. and Sanchez-Robles, B. (2003), “Foreign direct investment, economic freedom and growth: new evidence from Latin America”, European Journal of Political Economy, Vol. 19 No. 3, pp. 529-545.
Borensztein, E., De Gregorio, J. and Lee, J.-W. (1998), “How does foreign direct investment affect economic growth?”, Journal of International Economics, Vol. 45 No. 1, pp. 115-135.
Caves, R.E. (1971), “International corporations: the industrial economics of foreign investment”, Economica, Vol. 38 No. 149, pp. 1-27.
Chanegriha, M., Stewart, C. and Tsoukis, C. (2020), “Testing for causality between FDI and economic growth using heterogeneous panel data”, The Journal of International Trade & Economic Development, Vol. 29 No. 5, pp. 546-565.
Ciftci, C. and Durusu-Ciftci, D. (2022), “Economic freedom, foreign direct investment, and economic growth: the role of sub-components of freedom”, The Journal of International Trade & Economic Development, Vol. 31 No. 2, pp. 233-254.
Colen, L., Maertens, M. and Swinnen, J. (2008), “Foreign direct investment as an engine for economic growth and human development: a review of the economic arguments and empirical evidence”, Working Paper No. 16, Leuven Centre for Global Governance Studies, Leuven.
Csaba, L. (2020), “China at the crossroads”, Acta Oeconomica, Vol. 70 No. S, pp. 5-14.
Dunning, J.H. (2000), “Globalization and the theory of MNE activity”, in Hood, N. and Young, S. (Eds.), The Globalization of Multinational Enterprise Activity and Economic Development, Palgrave Macmillan, London, pp. 21-52.
Dunning, J.H. and Lundan, S.M. (2008), Multinational Enterprises and the Global Economy, 2nd Edition, Edward Elgar Publishing Inc., Massachusetts.
Fan, W. and Hao, Y. (2020), “An empirical research on the relationship amongst renewable energy consumption, economic growth and foreign direct investment in China”, Renewable Energy, Vol. 146, pp. 598-609.
Farole, T. and Winkler, D. (2014), Making Foreign Direct Investment Work for Sub-Saharan Africa: Local Spillovers and Competitiveness in Global Value Chains, World Bank Publications, Washington D.C.
Gentle, P. (2017), “Women in Southeast Asia: Myanmar, Cambodia, Laos, Thailand, Vietnam, Indonesia, Singapore, Timor, Philippines, Malaysia, Brunei; Essential trade: Vietnamese women in a changing marketplace”, Asia Pacific Business Review, Vol. 23 No. 5, pp. 735-737.
Granger, C.W.J. and Newbold, P. (2014), Forecasting Economic Time Series, 2nd Edition, Academic Press, USA.
Hayes, A.F. and Bolin, J.H. (2014), “Review of introduction to mediation, moderation, and conditional process analysis: a regression-based approach”, Journal of Educational Measurement, Vol. 51 No. 3, pp. 335-337.
Herzer, D., Klasen, S. and Nowak-Lehmann, D.F. (2008), “In search of FDI-led growth in developing countries: the way forward”, Economic Modelling, Vol. 25 No. 5, pp. 793-810.
Javorcik, B.S. (2004), “Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages”, American Economic Review, Vol. 94 No. 3, pp. 605-627.
Johnson, C. (1982), MITI and the Japanese Miracle, Stanford University Press, California.
Kamaly, A. (2002), “Evaluation of FDI flows into the MENA region”, Economic Research Forum Working Paper, Economic Research Forum, Cairo.
Kheng, V., Sun, S. and Anwar, S. (2017), “Foreign direct investment and human capital in developing countries: a panel data approach”, Economic Change and Restructuring, Vol. 50 No. 4, pp. 341-365.
Kim, P.H. and Li, M. (2014), “Injecting demand through spillovers: foreign direct investment, domestic socio-political conditions, and host-country entrepreneurial activity”, Journal of Business Venturing, Vol. 29 No. 2, pp. 210-231.
Knight, J.B. (2014), “China as a developmental state”, The World Economy, Vol. 37 No. 10, pp. 1335-1347.
Korle, K., Amoah, A., Hughes, G., Pomeyie, P. and Ahiabor, G. (2020), “Investigating the role of disaggregated economic freedom measures and FDI on human development in Africa”, Journal of Economic and Administrative Sciences, Vol. 36 No. 4, pp. 303-321.
Liu, R., Kang, Y. and Zhang, J. (2021), “Ideological taboos, entry barriers, and FDI attraction: evidence from China”, Journal of Asian Economics, Vol. 76, 101365.
Lu, W., Kasimov, I., Karimov, I. and Abdullaev, Y. (2020), “Foreign direct investment, natural resources, economic freedom, and sea-access: evidence from the commonwealth of independent states”, Sustainability, Vol. 12 No. 8, 8.
Meier, N. (2018), China - The New Developmental State?: An Empirical Analysis of the Automotive Industry, Peter Lang International Academic Publishers, Frankfurt.
Morshed, N. and Hossain, M.R. (2022), “Causality analysis of the determinants of FDI in Bangladesh: fresh evidence from VAR, VECM and Granger causality approach”, SN Business & Economics, Vol. 2 No. 7, 64.
Mudambi, R., Navarra, P. and Delios, A. (2013), “Government regulation, corruption, and FDI”, Asia Pacific Journal of Management, Vol. 30 No. 2, pp. 487-511.
Muhammad, S. and Mohammad, M.R. (2012), “The dynamic of financial development, imports, foreign direct investment and economic growth: cointegration and causality analysis in Pakistan”, Global Business Review, Vol. 13 No. 2, pp. 201-219.
Nguyen, Q.K. and Yang, Z. (2020), “Ownership structure and bank risk-taking in ASEAN countries: a quantile regression approach”, Cogent Economics & Finance, Vol. 8 No. 1, 1809789.
Pavlínek, P. (2012), “The internationalization of corporate R&D and the automotive industry R&D of East-Central Europe”, Economic Geography, Vol. 88 No. 3, pp. 279-310.
Pavlínek, P., Allez-Aller, R., Gil-Canaleta, C. and Ullibarri, M. (2017), “Foreign direct investment and the development of the automotive industry in Eastern and Southern Europe”, ETUI Research Paper - Working Paper 2017.03, European Trade Union Institute, Brussels.
Pearson, D., Nyonna, D. and Kim, K.-J. (2012), “The relationship between economic freedom, state growth and foreign direct investment in US states”, International Journal of Economics and Finance, Vol. 4 No. 10, pp. 140-146.
Singh, D. and Gal, Z. (2020), “Economic freedom and its impact on foreign direct investment: global overview”, Review of Economic Perspectives, Vol. 20 No. 1, pp. 73-90.
Tang, C.F., Abosedra, S. and Naghavi, N. (2021), “Does the quality of institutions and education strengthen the quality of the environment? Evidence from a global perspective”, Energy, Vol. 218, 119303.
Wade, R. (1990), Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization, Princeton University Press, New Jersey.
White, G. (1984), “Developmental states and socialist industrialisation in the third world”, The Journal of Development Studies, Vol. 2 No. 1, pp. 97-120.
Wonglimpiyarat, J. (2013), “Innovation financing policies for entrepreneurial development - Cases of Singapore and Taiwan as newly industrializing economies in Asia”, The Journal of High Technology Management Research, Vol. 24 No. 2, pp. 109-117.
Xu, C. (2011), “The fundamental institutions of China’s reforms and development”, Journal of Economic Literature, Vol. 49 No. 4, pp. 1076-1151.
Zheng, J. and Sheng, P. (2017), “The impact of foreign direct investment (FDI) on the environment: market perspectives and evidence from China”, Economies, Vol. 5 No. 1, 1.