The Role Of Foreign Direct Investment And Trade Openness As Drivers Of Sustainable Development In Asean-5 Countries
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Date
2017-09
Authors
Ridzuan, Abdul Rahim
Journal Title
Journal ISSN
Volume Title
Publisher
Universiti Sains Malaysia
Abstract
The goal of sustainable development (SD) which was part of ASEAN Vision 2025, has been discussed intensively among ASEAN-5 leaders from Malaysia, Indonesia, Thailand, Philippines, and Singapore. The recent trend of higher environmental pollution and greater income inequality that detected across ASEAN-5 countries could hinder the countries to reach SD. Thus, there is a need to determine suitable drivers that can gives positive influences towards the above issues. This study highlighted the role of foreign direct investment (FDI) inflow as well as trade openness (TO) as main drivers for SD as both drivers have been grown in its importance in the ASEAN-5 countries. This thesis employed the Autoregressive Distributed Lag (ARDL) approach to testify all the research objective. The trend for FDI share of real output (GDP) has been fluctuated since Asian Financial Crisis 1997. The first research objectives focused on testing the selected macroeconomic indicators for net FDI inflows. It was revealed that economic growth rate had significant impact on FDI inflows for Malaysia, Indonesia and Thailand; domestic investment for Malaysia and Singapore; TO for Malaysia, Indonesia, Thailand and Philippines; government final consumption for Thailand and Philippines; and lastly, financial development for Singapore. The second research objective highlighted the presence of Environmental Kuznets Curve (EKC) and Kuznet Curve (KC) by taking into account the role of FDI and TO as a control variable. The inverted U shaped of Environmental Kuznets Curve (EKC) was detected for the case of Thailand and Singapore while the U shaped of EKC was detected in Malaysia. These outcomes indicated that both Thailand and Singapore managed to achieved sustainability in both economic growth and environmental quality but not for Malaysia. Next, the analysis failed to find the presence of inverted U shaped of Kuznets Curve for all ASEAN-5 countries. This outcome meant that the countries still suffer from income inequality despite achieving greater economic growth. Meanwhile, FDI and TO displayed mixed signs in each ASEAN-5 countries. The main studies as revealed in third research objective showed that FDI is a better driver for SD as compared to TO especially for Malaysia and Indonesia. The FDI consequently fulfilled all three conditions of SD in these countries while the outcomes for TO was mixed. Other tested variables also show a mixed result.
ASEAN-5 countries need to develop a suitable policy by considering both investment and international trade policies in order to achieve ASEAN Vision 2025.
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Keywords
The role of foreign direct investment , of sustainable development in Asean-5 countries