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This study analyses the foreign direct investment (FDI) inflows into China from ASEAN-5 countries using the panel cointegration approach. The FDI model has been utilized in determining factors that influence FDI inflows into China from ASEAN-5 countries, namely, Malaysia, Thailand, the Philippines, Indonesia and Singapore. Variables such as trade openness (OPENNESS), exchange rate of China relative to each of individual ASEAN-5 countries (RELEXC), fixed capital formation (FCF), and gross domestic product (GDP) are used for the period of 1990 - 2004. The empirical results indicate that for most countries OPENNESS and GDP are significant variables in explaining the flow of FDI to China. Meanwhile, FCF is only significant for Malaysia. Conversely, RELEXC is not statistically significant for all countries. It is hoped that this finding can be used by researchers and policy makers in making decision on multilateral relationship between China and ASEAN-5 countries.
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1. Introduction
Foreign direct investment (FDI) plays an important role in the growth and development of not only the developed countries but also in the developing countries. Besides the capital that it brought in, it also introduces new and modem technology which provides market opportunities and linkages to export. Countries are competing with each other to offer a lucrative incentive plans to attract FDI.
The Asian region has always been considered as a prudent centre for investment especially from the United States of America (USA), Japan, United Kingdom (UK) and other European countries. Globalization and integration of economic activities across the world forced the government of the Asian countries to attract FDI which later on translated into rapid growth in these economies. Asian countries are implementing new plans and policies to attract more and more FDI which will bring in new innovation and automation based technologies that can rejuvenate the host country's existing manufacturing base. Furthermore, the Asian region attracts FDI inflows as a result of her abundant natural resources, highly skilled, experienced and knowledgeversed labour, and huge size of domestic market.
China has been opening up its economy for more than twenty years; however its accession to World Trade Organization (WTO) on 11 December 2001 implies extensive consequences for its economy. China's opening up policy has aimed at promoting exports, while protecting the domestic...