The economic impact of China's Foreign Direct investment on ASEAN-4

Abstract

This study examines the economic impact and determinants of China's foreign direct investment (FDI) in four ASEAN countries - Indonesia, Malaysia, Thailand and Singapore - focusing on its impact on economic growth and key macroeconomic indicators. This study analyzes the short-run dynamic and long-run equilibrium relationships between China's FDI and the variables of trade openness, government expenditure, inflation, unemployment rate, and population using panel data from 2003 to 2023, using a cross-section augmented autoregressive distributed lag (CS-ARDL) model. The CS-ARDL model effectively considers the cross-sectional dependence among the variables, heterogeneity and mixed-order integration among the variables, thus ensuring that the results are robust and unbiased, and therefore particularly suitable for this analysis. The findings suggest that Chinese FDI plays an important role in influencing GDP growth in the ASEAN-4 countries, highlighting the importance of institutional frameworks and macroeconomic conditions in moderating FDI outcomes. This study provides valuable insights for ASEAN policymakers, foreign investors in China, and recommendations on how to optimize the development benefits of FDI and strengthen regional economic cooperation. In addition, the findings contribute to the academic debate on FDI and its impact on sustainable economic development.