Foreign Direct Investment (FDI) plays a prominent role in driving the economic progress of emerging markets. As an important source of funds for long-term investment, FDI inflows are imperative to the economic recovery of emerging markets following economic crises, including the one due to the COVID-19 pandemic.

Global FDI inflows declined by USD 1 trillion in 2020. The slump in FDI inflows was more pronounced in the European Union and the OECD countries, with about 73% and 51% contractions, respectively. Despite the global contraction, the pandemic resulted in a rebalancing of FDI inflows, with some regions experiencing a surge in FDI flows. Emerging Asia witnessed such an anomaly, with robust greenfield (GF) FDI flows during the pandemic. Asia was the only region which witnessed positive FDI inflows to its emerging markets. This has important implications for the region’s economic resilience as GF FDI helps to create jobs and provide income as foreign firms set up facilities from the ground up.

Asia’s FDI landscape weathered the pandemic and remained attractive to foreign investors. A few factors are responsible for this, including impressive growth in these economies, relocation of investments from China and strong regional value chains. As the development of technology and human resources accelerates in Emerging Asia, investments tend to flow locally within the region – a trend that has been on the rise since 2010. This integration within Asia forges even stronger intraregional investment flows as new free trade agreements such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) are signed.

Even before the pandemic, Emerging Asia was one of the largest recipients of GF FDI flows, with the economies of China, ASEAN and India as preferred FDI destinations. Intra-regional FDI ties were also strong, with sizeable bilateral FDI flows from China to ASEAN through the Belt and Road Initiative (BRI). Being a priority region towards realizing the BRI goals, ASEAN has received significant infrastructure investments from China since 2013.

With FDI providing the necessary impetus for economic recovery, policy competitions emerge among countries with significant overhauls in domestic FDI policy. For example, India seeks to reboot the ‘Make in India’ initiative by wooing foreign investors with more FDI de-regulation. Another large Emerging Asian economy, Indonesia, plans to introduce more Special Economic Zones (SEZs) to jump-start economic recovery amid the COVID-19 pandemic. Studies also find that a conducive policy environment in destination countries is vital to attract FDI inflows.

This book is a collection of essays that use rigorous econometric techniques to investigate the reconfiguration of GF FDI flows to the Emerging Asian economies of ASEAN, China and India in the context of three pertinent themes: (I) COVID-19 pandemic, (II) Belt and Road Initiative and (III) domestic FDI policy reforms. Part I explores the rebalancing effects in global FDI flows after the COVID-19 pandemic, focusing on the experience of Emerging Asian economies. We also evaluate the nature of the pandemic’s impact on existing FDI linkages between China and ASEAN. Part II delves into the implications of a cross-border policy framework like the Belt and Road Initiative (BRI). In particular, we examine ASEAN trade activity after China’s investments through BRI. We further discuss the future of BRI in ASEAN economies amid the emergence of global competitors. Part III of the book zooms in on the effectiveness of domestic FDI policy reforms. We discuss the Indonesia Special Economic Zones and the Make in India initiative. This book is written for scholars, policymakers and industrial practitioners who wish to gain more knowledge on the recent FDI dynamics of Emerging Asia.

By GEORGE, Ammu