How Does Investment Promotion Affect FDI Inflows? Empirical Evidence from Asian Countries

Abstract

Despite the fact that investment promotion plays an important role for recipient countries to attract FDI, there has not been much research in the case of Asian countries – which are gradually becoming attractive destinations for FDI investors. To bridge this gap, by utilizing Dunning’s location advantage and UNCTAD’s host country determinant framework, using the data of 20 Asian countries from 2006-2021, and looking into investment promotion from the perspective of budget, our paper found that investment promotion budgets have a significantly positive impact on FDI in these Asian countries. In addition, while the FDI effect is significant in high investment promotion budget countries, it is insignificant in low budget countries. This implies the considerable role of the spent budget of countries for FDI attraction.