Market Size, Trade Openness, and Foreign Direct Investment in Selected Asian Countries

Abstract

Developing economies have been observed variations in foreign direct investment inflows with having influx of multinational enterprises. The FDI may be affected by many socio-economic factors. However, this research highlights the role of market size (proxy of GDP per capita) as a key factor in determining foreign direct investment in some selected Asian economies. By using a panel data set of 12 Asian economies during the time span of 2009 to 2019, it is found that high economic growth attracts investment from foreign investors in Asian countries which has a vital importance for further growth and development. Dependent variable is used as foreign direct investment and independent variables are used as GDP per capita as proxy of market size, trade openness, fixed telephone subscriptions per 100 people and urban population in this analysis. The GMM results indicate that GDP per capita, trade openness and fixed telephone subscriptions per 100 people and urban population may result in attracting foreign direct investment in these economies. Our findings recommend for more export and production which will increase growth and attract more investment chances from international businesses.