ANALYSIS OF FDI INFLOWS TO CHINA FROM SELECTED ASEAN COUNTRIES: A

PANEL COINTEGRATION APPROACH

Hussin Abdullah
E-mail: ahussin@uum.edu.my
No!A"nin Abu #a$a
E-mail: noraznin@uum.edu.my
Sallahuddin Hassan
E-mail: din636@uum.edu.my
College of Arts and Sciences
Universiti Utara Malaysia
Sintok 06010,Kedah
Malaysia
Abs%a&%
This study analyses the F! inflo"s into China fro# the selected AS$A% countries using the
&anel cointegration a&&roach' The F! #odel has (een utili)ed in deter#ining factors that
influence F! inflo"s into China fro# selected AS$A% countries* Malaysia, Thailand, the
+hili&&ines, !ndonesia and Singa&ore' S&ecifically, varia(les such as trade o&enness, e,change
rate of China relative to each of individual AS$A% countries -$.C/, gross do#estic &roduct
-0+/ and fi,ed ca&ital for#ation -FCF/ are used for the &eriod of 111023004' Fro# the
findings it is ho&ed that it can give useful infor#ation as guidelines to assist researchers, &olicy
#akers, as one (asis for &lanning and #aking decisions on future &olicies regarding #ultilateral
relationshi& (et"een China and selected AS$A% countries'
Keywords: Trade openness, Exchange rates, Foreign Direct Investment, panel cointegration
analysis
'EL Classi(i&a%ion: F)*+ F,)+ F-)+ C,,
1
I. INTRODUCTION
Foreign direct investment (FDI) lays an imortant role in the gro!th and develoment
o" not only the develoed countries #ut also in the develoing countries. $esides% caital have
#een #rought in% it also introduces ne! and modern technology !hich rovides mar&et
oortunities and lin&ages to e'ort. (ountries are cometing !ith each other to o""er a lucrative
incentive lans to attract "oreign direct investments.
)sian region has al!ays #een considered as a rudent centre "or investment esecially
"rom the *nited +tates o" )merica% ,aan% *nited -ingdom and other Euroean countries.
.lo#alization and integration o" economic activities across the !orld "orced the government o"
the )sian countries to attract FDI !hich later on e'erienced a surrising gro!th. )sian
countries are imlementing ne! lans and olicies to attract more and more FDI !hich !ill
#ring in ne! innovative and automation #ased technologies that can re/uvenate the host
country0s e'isting manu"acturing #ase. Furthermore% human la#our trans"er in the "orm o" highly
s&illed% e'erienced and &no!ledge-versed is a remar&a#le move to #oost the country0s
economic gro!th.
(hina has #een oening u its economy "or more than t!enty years1 ho!ever its
accession to 234 imlies e'tensive conse5uences "or its economy. (hina0s oening u olicy
has aimed at romoting e'orts% !hile rotecting the domestic mar&et. 3his !as achieved
through a dualistic trade regime% !hich has granted tari"" e'emtions on imorts o" intermediate
#y e'ort-oriented industries% and through a selective olicy% !hich has channelled F! into
manu"acturing roduction targeted "or e'orts or "or imort su#stitution. )s a result% F!
in"lo!s have layed a ma/or art in the oening u o" (hina0s industry and its integration into
the international division o" la#our. 3he raid e'ansion o" its international trade and large
caital in"lo!s rovide evidence o" the increasing integration o" (hina in the !orld economy.
+ince 6789% (hina0s share in international trade has tre#led% rising "rom less than one ercent to
more than three ercent in 6777. (hina has #ecome the second largest reciient o" F!% a"ter the
*.+ !ith cumulated in"lo!s amounting to more than *+: 399 #illion at the end o" 6777.
)ccording to +hu and ;eng (<996)% F! in"lo!s "rom )+E)= into (hina are no!
aro'imately "i"ty times as much as it !as in 6779 (see 3a#le 6.6). During 677>-<99>% the
cumulative amount o" (hina0s actually utilized F! "rom )+E)= reached *+:33.?3 #illion%
2
!hich e'ceeded the cumulative amount o" (hina0s actually utilized FDI "rom the *-% France
and .ermany com#ined% !hich !as *+:<?.<6 #illion.
Tabl/ ).): Fo/i0n Di/&% In1/s%2/n% in China b3 ASEAN Coun%i/s+ )44*5-**6
7a2oun% &on%a&%/d in US8 2illion9
Coun%3 Mala3sia Indon/sia Sin0a:o/ Thailand Th/
Phili::in/s
ASEAN
6779
6776
677<
6773
677>
677@
6776
677?
6778
6777
<999
<996
<99<
<993
<99>
6>
676
<>6?
76><
<9977
<@799
>@77@
38683
3>9>7
<3??6
<9<88
<6<78
36?86
<@693
38@9>
699
<68
<96?
6@?@
66@?9
66663
73@>
?778
68?7
6<76?
6>67>
6@76>
6<66>
6@963
69>@<
@9>3
@8<6
6<@73
>7689
66?76
686966
<<>?66
<696>6
3>937?
<6><>7
<6?<<9
<6>3@@
<33?<9
<9@8>9
<9986>
6?<
676<
8>3<
<3>3?
<3>8?
<88<>
3<868
67>99
<9@38
6>83<
<93@?
67><6
68??<
6?3@<
6?8<8
66?
@8@
66@@
6<<@9
6>9>9
69@?8
@@@6
6@@63
6?7<?
66?<8
6666<
<9737
68699
<<996
<33<>
69>6
8?8<
<8379
69<38@
687399
<6@3@6
367376
3><899
><<368
3<88??
<8>>@8
<7837@
3<@@7>
<7<@>3
39>9@3
Sources: +hu and ;eng (<996)
.iven the a#ove scenario% the urose o" this study is to analyse the FDI in"lo!s into
(hina "rom the selected )+E)= countries using anel cointegration aroach. 3he rest o" the
aer is organized as "ollo!s. +ection < revie!s the e'isting literature on "oreign direct
investment and gro!th. +ection 3 descri#es the data used and the methodology o" determining
3
"actors that in"luence the level o" F! in"lo!s into (hina. 3he emirical results o" the study are
reorted in +ection > and +ection @ resents the conclusion.
II. LITERATURE RE;IEW
Aany studies have #een carried out to analyze the issue o" FDI and economic gro!th. )s
stated in many studies% FDI lays an imortant role in emerging mar&ets as these economies are
generally lac&ing in terms o" technology as !ell as caital to "und the ro/ects ($orenzstein et
al.% 67781 Estrin% <9991 $uc&ley et al.% <99<). Furthermore% B$usse and .roizard (<996)% Findlay%
(67?8)% $lomstrom (6786)C% in their studies stated that the in"lo! o" ne! &no!ledge may #ene"it
domestic "irms through imitation and learning. Aost o" the studies suort the vie! that "oreign
caital ositively a""ects domestic consumtion !hich leads to higher economic gro!th.
($os!orth et.al (6777)% Aoreno (<999). $esides% increasing consumtion and "inancing raid
rates o" investment% caital "lo!s also allo! investors to diversi"y their ris&s ((alvo et al% 67761
Aoreno <999).
)mong the early study on the role o" FDI is Dloyd (6776). Dloyd (6776) classi"ied the
role o" FDI into t!o main areas E as an agent o" technology trans"er as !ell as an agent "or
trans"ormation o" the economies. Fet% until today% roer emirical study on technology trans"er
via FDI and multinational cororations in develoing economies li&e )+E)= is not intensive
enough as comare to the develoment o" theoretical lin&ages #et!een the t!o. 3echnology
trans"er is imortant "or the host countries to FDI% as success"ul technology trans"er !ill #ene"it
the reciient countries #y imroving technological caa#ility% there#y leading to "urther
economic gro!th.
3he most recent attemt to investigate the e'tent o" technology trans"er in )+E)= is Dee
and 3an (<996). 3he results are not very conclusive regarding the role o" FDI in trans"erring the
technology as the ro'y "or technology trans"er% !hich is imorts o" machinery may not #e a
good ro'y. In "act% !e "ound that this ro'y is not roerly /usti"ied. =evertheless% they o""er a
good idea that to e'tract "ully the #ene"its o" FDI and technology trans"er% nations should
understand the magnitude o" technology trans"er itsel"% li&e its determinants and modes o"
trans"er. +umner (<99@) also shares the same oinion !ith Dee and 3an (<996) that mode o" FDI
entry can #e very crucial to ensure that the host country #e #ene"ited "rom in"lo! o" FDI. )
4
green"ield investment or a /oint venture may #ring in ne! caital and !ould li&ely have a strong
local sillovers. In contrast% mergers and ac5uisitions are li&ely the channel% through !hich FDI
!ould e'ert negative imacts as no ne! caital and there"ore% less li&ely increase in technology
trans"er% managerial s&ill trans"er% local sourcing sillovers or roductivity to ta&e lace
(+umner% <99@).
+everal studies argue that the roductivity and #ene"its o" "oreign caital !ill deend on
the re-e'isting conditions in the economy. Ducas (6779) in his study stated that the ne!
investment is more roductive in countries !ith a s&illed !or&"orce and !ell-develoed hysical
in"rastructure. +ome studies have also analyzed the otential negative imact o" caital in"lo!s
!hich volatility in caital "lo!s may have negative in"luence% and sudden reversal o" the caital
can #e devastating "or reciient countries.
+hu and ;eng (<996) in their descritive analysis have indicated three "actors that e'ert
signi"icant in"luence on FDI in"lo!s #et!een (hina and )+E)=. 3hose "actors are ne! #ilateral
economic agreements% (hina0s ne! mega economic zone% and )+E)= re"orms and ne! "oreign
olicy. $ilateral agreements such as Frame!or& )greement on (omrehensive Economic
(ooeration (F)(E() #et!een )+E)= and G.H. (hina signed in <99<% "or instance% can
strengthening economic relations% !hich is a strategic goal o" #oth sides. ) large variety o"
(hinese roducts have #een e'orted% on a large scale% into )+E)= mem#er countries. )"ter
signing F)(E( agreement% (hina rovides survival and gro!th oortunities "or )+E)=
investors and traders.
III. METHODOLOGY
,.) Da%a
+econdary data are used in the study. 3he #alanced anel consists o" annual data "or F!
in"lo!s in (hina "rom "ive selected )+E)= countries% namely Aalaysia% 3hailand% 3he
Ghiliines% Indonesia and +ingaore "or the eriod o" 6779-<99> and data o" each varia#le is
measured in *+ dollars. 3he data are gathered and veri"ied "rom various sources i.e.
International Financial +tatistics #y IAF% Direction o" 3rade +tatistics% 2orld Develoment
Indicators and 2orld De#t 3a#les.
5
,.- Mod/l S:/&i(i&a%ion
In this aer !e ool cross-section and time series data to study relationshis #et!een
"oreign direct investment and indeendent varia#les such as trade oenness% e'change rate% gross
domestic roduct and "i'ed caital "ormation. 2e get the "ollo!ing e5uation:
) % % % ( 0+ FCF 5$6$.C 7+$%$SS f F! =
(6)
!here FDI is "oreign direct investment and "actors that in"luence FDI in"lo!s in (hina includes
level o" trade oenness (7+$%$SS)% e'change rate o" (hina relative to each o" individual
)+E)= countries (5$6$.C)% gross domestic roduct (0+) and "i'ed caital "ormation (FCF).
)mong these "our time-varying e'lanatory varia#les are emloyed in this analysis% 7+$%$SS is
considered as the &ey time-varying e'lanatory varia#le. 3he choice o" these varia#les relies on
the data accessi#ility. FDI it reresents the total F! in"lo!s into (hina "rom selected )+E)=
countries. 7+$%$SS is the level o" trade oenness. It is measured #y the ratio o" real trade share
(e'ort I imort) to gross domestic roduct1 5$6$.C is the e'change rate o" (hina relative to
each o" the individual )+E)= countries1 0+ is the gross domestic roduct o" (hina1 and FCF
is the total o" "i'ed caital "ormation in (hina. 3he emirical model "orm "or this seci"ication is
given #y:
it it it it it it
0+ FCF 5$6$.C 7+$%$SS F! + + + + + =
> 3 < 6 9 (<)
!here F!, 7+$%$SS, 5$6$.C, FCF, and 0+ are as de"ined earlier in E5uation (6). 3he 8
9
is
a constant term and 8
6
to 8
>
are estimated arameters in the model and i is a cross-section data "or
countries re"erred to% and t is a time series data and 9
it
is an error term.
,.,. Es%i2a%ion Po&/du/
In order to investigate the ossi#ility o" anel cointegration% it is "irst necessary to
determine the e'istence o" unit roots in the data series. For this study !e have chosen the Im%
Gesaran and +hin (IG+% herea"ter)% !hich is #ased on the !ell-&no!n Dic&ey-Fuller rocedure.
Im% Gesaran and +hin denoted IG+ roosed a test "or the resence o" unit roots in anels
that com#ines in"ormation "rom the time series dimension !ith that "rom the cross section
6
dimension% such that "e!er time o#servations are re5uired "or the test to have o!er. +ince the
IG+ test has #een "ound to have suerior test o!er #y researchers in economics to analyze long-
run relationshis in anel data% !e !ill also emloy this rocedure in this study. IG+ #egins #y
seci"ying a searate )DF regression "or each cross-section !ith individual e""ects and no time
trend:
J
K I y L M I y N I O P y L
i

6 P /
it / t % i i/ 6 t % i i i it
(3)
!here i P 6% . . .%% and t P 6% . . .%T
IG+ use searate unit root tests "or the % cross-section units. 3heir test is #ased on the
)ugmented Dic&ey-"uller ()DF) statistics averaged across grous. )"ter estimating the searate
)DF regressions% the average o" the t-statistics "or
6
"rom the individual )DF regressions%
: ) ( t
i
i
i3
J
) M ( t
=
6
P t
=
6 P i
i i i3 =3

(>)
3he t-#ar is then standardized and it is sho!n that the standardized t2(ar statistic converges to
the standard normal distri#ution as = and 3

. IG+ (677?) sho!ed that t2(ar test has #etter
er"ormance !hen = and 3 are small. 3hey roosed a cross-sectionally demeaned version o"
#oth test to #e used in the case !here the errors in di""erent regressions contain a common time-
seci"ic comonent.
Panel Cointegration Tests
3he ne't ste is to test "or the e'istence o" a long-run cointegration among FDI and the
indeendent varia#les using anel cointegration tests suggested #y Gedroni (6777 and <99>). 2e
!ill ma&e use o" seven anel cointegrations #y Gedroni (6777)% since he determines the
aroriateness o" the tests to #e alied to estimated residuals "rom a cointegration regression
a"ter normalizing the anel statistics !ith correction terms.
7
3he rocedures roosed #y Gedroni ma&e use o" estimated residual "rom the
hyothesized long-run regression o" the "ollo!ing "orm:
t % i t % Ai Ai t % i < i < t % i 6 i 6 i i t % i
e I ' M I I ' M I ' M I t Q I O P y
(@)
for t : 6,;'',T* i : 6,;',%* # : 6, ;', M,
!here T is the num#er o" o#servations over time% % num#er o" cross-sectional units in the anel%
and M num#er o" regressors. In this set u%
i
O is the mem#er seci"ic intercet or "i'ed e""ects
arameter !hich varies across individual cross-sectional units. 3he same is true o" the sloe
coe""icients and mem#er seci"ic time e""ects% t Q
i
.
Gedroni (6777 and <99>) rooses the heterogeneous anel and heterogeneous grou mean
anel test statistics to test "or anel cointegration. Re de"ines t!o sets o" statistics. 3he "irst set
o" three statistics 3 % = % vS
;
% 6 3 % = NS
;
and 3 % t=
;
is #ased on ooling the residuals along the
!ithin dimension o" the anel. 3he statistics are as "ollo!s
=
6 P i
3
6 P t
<
6 t % i
<
i 66
< T 3 <
3 % = % vS
JJ
eS D
S
= 3 P ;

(6)
( ) JJ
U
S
eS L eS D
S
JJ
eS D
S
= 3 P ;
=
6 P i
3
6 P t
i t % i 6 t % i
<
i 66
6
=
6 P i
3
6 P t
<
6 t % i
<
i 66 6 3 % = NS

(?)
( ) JJ
U
S
eS L eS eS D
S
J J
eS D
S
V
W
P ;
=
6 P i
3
6 P t
i t % i 6 t % i
<
6 t % i
<
i 66
< T 6
=
6 P I
3
6 P 3
<
6 t % i
<
i 66
<
3 % = 3 % t=

(8)
!here 6 t % i
eS
is the residual vector o" the 4D+ estimation o" E5uation (@) and !here the other
terms are roerly de"ined in Gedroni.
3he second set o" statistics is #ased on ooling the residuals along the #et!een dimension
o" the anel. It allo!s "or a heterogeneous autocorrelation arameter across mem#ers. 3he
statistics are as "ollo!s:
8
( ) J
U
S
eS L eS J J
eS P ;
W
3
6 P t
i t % i 6 t % i
6
=
6 P i
3
6 P t
<
6 t % i 6
3 % = NS

(7)
( ) J
U
S
eS L eS J J
eS P ;
W
3
6 P t
i t % i 6 t % i
< T 6
=
6 P i
3
6 P t
<
6 t % i 6
3 % t=

(69)
3hese statistics comute the grou mean o" the individual conventional time series statistics. 3he
asymtotic distri#ution o" each o" those "ive statistics can #e e'ressed in the "ollo!ing "orm:
) 6 % 9 ( =
v
= X Y
3 % =
(66)
!here T %
.
% is the corresonding "rom o" the test statistics% !hile

and
v
are the mean and
variance o" each test resectively. 3hey are given in 3a#le < in Gedroni (6777). *nder the
alternative hyothesis% Ganel v statistics diverges to ositive in"inity. 3here"ore% it is a one sided
test !ere large ositive values re/ect the null o" no cointegration. 3he remaining statistics diverge
to negative in"inity% !hich means that large negative values re/ect the null.
Fully odi!ied "rdinary #east $%uares &F"#$' Estimation
In this section !e adot FA4D+ rocedure "rom (hristooulos and 3sionas. In order to
o#tain asymtotically e""icient consistent estimates in anel series% non-e'ogeneity and serial
correlation ro#lems are tac&led #y emloying "ully modi"ied 4D+ (FA4D+) introduced #y
Gedroni (6776). +ince the e'lanatory varia#les are cointegrated !ith a time trend% and thus a
long-run e5uili#rium relationshi e'ists among these varia#les through the anel unit root test
and anel cointegration test% !e roceed to estimate the E5uation (<) #y the method or "ully
modi"ied 4D+ (FA4D+) "or heterogenous cointegrated anels. 3his methodology allo!s
consistent and e""icient estimation o" cointegration vector and also addresses the ro#lem o" non-
stationary regressors% as !ell as the ro#lem o" simultaneity #iases. It is !ell &no!n that 4D+
estimation yields #iased results #ecause the regressors are endogenously determined in the !(6)
case. 3he starting oint 4D+ as in the "ollo!ing cointegrated system "or anel data:
9
it it i it
e I M 'Z I O P y
(6<)
it 6 t % i it
K I ' P '
!here
B C
it it it
KZ % e P [ is the stationary !ith covariance matri'
i

. 3he estimator

!ill #e
consistent !hen the error rocess
CZ KZ % e B I \
it it it
satis"ies the assumtion o" cointegration #et!een
it
y
and it
,
. 3he limiting distri#ution o" 4D+ estimator deends uon nuisance arameters.
Follo!ing Ghillis and Ransen (6779)% a semi-arametric correction can #e made to the 4D+
estimator that eliminates the second order #ias caused #y the "act that the regressors are
endogenous. Gedroni (6776 and <999) "ollo!s the same rincile in the anel data conte't% and
allo!s "or the heterogeneity in the short run dynamics and the "i'ed e""ects. FA4D+ Gedroni0s
estimator is constructed as "ollo!:
( ) J
]S 3 e ' ' ^
S
J
^
S
J J
) 'S ' ( ^
S
P M M
S
3
6 P t
i it t it
6
i <<
=
6 P i
6
i 66
6
=
6 P i
3
6 P t
<
t it
<
i << FA

(63)
( )
9
i << i << i <6
6
i <<
9
i <6 i <6 i i <6
6
i << it it
^
S
I _
S
^
S
^
S
^
S
I _
S
P ]S % ^
S
^
S
e P eS
!here the covariance matri' can #e decomosed as
i i
9
i i
_ I _ I ^ P ^ !here
9
i
^ is the
contemoraneous covariance matri'% and i

is a !eighted sum o" autocovariances. )lso%

9
i
^
S
denotes an aroriate estimator o"
9
i
^ .
In this study% !e emloyed anel grou FA4D+ test "rom Gedroni (6776% <999). )n
imortant advantage o" the anel grou estimators is that the "orm in !hich the data is ooled
allo!s "or greater "le'i#ility in the resence o" heterogeneity o" the cointegrating vectors. 3est
statistics constructed "rom the anel grou estimators are designed to test the null hyothesis
9 i 9
M P M : R
"or all i against the alternative hyothesis
9 i )
M ` M : R
% so that the values "or
i
M are
not constrained to #e the same under the alternative hyothesis. (learly% this is an imortant
advantage "or alications such as the resent one% #ecause there is no reason to #elieve that% i"
the cointegrating sloes are not e5ual to one% !hich they necessarily ta&e on some other ar#itrary
common value. )nother advantage o" the anel grou estimators is that the oint estimates have
10
a more use"ul interretation in the event that the true cointegrating vectors are heterogeneous.
+eci"ically% oint estimates "or the anel grou estimator can #e interreted as the mean value
"or the cointegrating vectors (Gedroni% <996).
I;. EMPIRICAL RESULTS
3a#le >.6% resents the results o" the IG+ anel unit root test at level indicating that all
varia#les are !(9) in the constant o" the anel unit root regression. 3hese results clearly sho! that
the null hyothesis o" a anel unit root in the level o" the series cannot #e re/ected at various lag
lengths. 2e assume that there is no time trend. 3here"ore% !e test "or stationarity allo!ing "or a
constant lus time trend. In the a#sence o" a constant lus time trend% again !e "ound that the
null hyothesis o" having anel unit root is generally re/ected in all series at level "orm and
various lag lengths. 2e can conclude that most o" the varia#les are non-stationary in !ith and
!ithout time trend seci"ications at level #y alying the IG+ test !hich is also alied "or
heterogeneous anel to test the series "or the resence o" a unit root. 3he results o" the anel unit
root tests con"irm that the varia#les are non-stationary at level.
Tabl/ 6.): Pan/l Uni% Roo% T/s% < I2+ P/saan and Shin 7IPS9
aaria#le Devel First order di""erence
(onstant (onstant I 3rend (onstant (onstant I 3rend
FDI
-6.<69@3
(9.693?)
-6.9>367
(9.6>8>)
-<.?967?bb
(9.993>)
-6.?9<76bb
(9.9>>3)
4GE=E++
-9.76?86
(9.7633)
-6.68<99
(9.8?96)
-3.>6698b
(9.9999)
-3.@9@88bb
(9.996<)
HEDEY(
-6.>6??@
(9.@8@@)
-6.??<37
(9.8<97)
-3.683>@b
(9.9996)
-3.36<?3bb
(9.99>?)
F(F
-<.9>369
(9.8776)
-6.6678>
(9.878?)
-<.>@696bb
(9.9668)
-6.@>767bbb
(9.969?)
.DG
-<.9977>
(9.6<67)
-6.76<88
(9.68<6)
-<.7??>8b
(9.999@)
-<.88?96bb
(9.9@63)
=ote:
b% bb indicates re/ection o" the null hyothesis o" no-cointegration at 6c and @c% levels o" signi"icance
11
3a#le >.6 also resents the results o" the tests at "irst di""erence "or IG+ test in constant
and constant lus time trend. 2e can see that "or all series the null hyothesis o" unit root test is
re/ected at 7@ ercent critical value (6 ercent level). Rence% #ased on IG+ test% there strong
evidence that all the series are in "act integrated o" orders one.
2e can conclude that the results o" anel unit root tests (DD(% IG+ and A2 tests)
reorted in 3a#le >.6 suort the hyothesis o" a unit root in all varia#les across countries% as
!ell as the hyothesis o" zero order integration in "irst di""erences. )t most o" the 6 ercent
signi"icance level% !e "ound that all tests statistics in #oth !ith and !ithout trends signi"icantly
con"irm that all series strongly re/ect the unit root null. .iven the results o" DD(% IG+% and A2
tests% it is ossi#le to aly anel cointegration method in order to test "or the e'istence o" the
sta#le long-run relation among the varia#les.
Tabl/ 6.-: Th/ P/doni Pan/l Coin%/0a%ion T/s%
T/s% Cons%an% %/nd Cons%an% = T/nd
Ganel v-+tatistic -9.969?8 -9.8>686
Ganel <-+tatistic -9.788>6 -6.83669bb
Ganel t-+tatistic: (non-arametric) -6.9<>66 -6.<69<@
Ganel t-+tatistic (adf): (arametric) -<.678<>bb -<.63?93bb
.rou <E+tatistic -6.7?986bb -<.6@38@bb
.rou t-+tatistic: (non-arametric) -9.66766 -6.<7>@8
.rou t-+tatistic (adf): (arametric) -3.6?<98b -3.@8?>6b
%ote= )ll statistics are "rom Gedroni0s rocedure (6777) !here the ad/usted values can #e comared to the
=(9%6) distri#ution. 3he Gedroni (<99>) statistics are one-sided tests !ith a critical value o" -6.6> ( k d
-6.6> imlies re/ection o" the null)% e'cet the v-statistic that has a critical value o" 6.6> (k e 6.6> suggests
re/ection o" the null). b% bb indicates re/ection o" the null hyothesis o" no-co-integration at 6c and @c%
levels o" signi"icance.
3he ne't ste is to test !hether the varia#les are cointegrated using Gedroni0s (6777%
<996% and <99>). 3his is to investigate !hether long-run steady state or cointegration e'ist
among the varia#les and to con"irm !hat (oiteu' and 4livier (<999) state that the anel
cointegration tests have much higher testing o!er than conventional cointegration test. +ince
12
the varia#les are "ound to #e integrated in the same order !(6)% !e continue !ith the anel
cointegration tests roosed #y Gedroni (6777% <996% and <99>). (ointegrations are carried out
"or constant and constant lus time trend and the summary o" the results o" cointegrations
analyses are resented in 3a#le >.<.
In constant level% !e "ound that 3 out o" ? statistics re/ect null #y hyothesis o" no
cointegration at the @ ercent level o" signi"icance "or the adf-statistic and grou <E+tatistic%
!hile the grou-adf is signi"icant at 6 ercent level. 3he results o" the anel cointegration tests in
the model !ith constant level sho! that indeendent varia#les do hold cointegration in the long
run "or a grou o" )+E)=-@ countries !ith resect to FDI. In the anel cointegration test "or our
model !ith constant lus trend level% the results indicate that > out o" ? statistics re/ect the null
hyothesis o" non cointegration at the 6 ercent and @ ercent level o" signi"icance. It is sho!n
that indeendent varia#les do hold cointegration in the long run "or a grou o" )+E)=-@
countries !ith resect to FDI. Ro!ever% since all the statistics conclude in "avour o"
cointegration% and this% com#ined !ith the "act that the according to Gedroni (6777) the anel
non-arametric (t-statistic) and arametric (adf-statistic) statistics are more relia#le in constant
lus time trend% !e conclude that there is a long run cointegration among our varia#les in
)+E)=-@ countries.
Tabl/ 6.,: FMOLS R/0/ssion
(ountry 4GE==E++ HEDEY( F(F .DG
Indonesia @.@@b (3.86) -9.>< (-9.69) -<<.?<b (-3.8<) 39.8@b (>.6?)
Aalaysia 6.33b (<.@>) 9.@< (9.39) <.76bb (<.6?) 6.@< (6.96)
Ghiliines 6.@8 (6.93) 9.>7 (9.<?) 6.39 (9.>@) <.<< (9.87)
+ingaore ->.6?b (-3.<<) -9.66 (-6.69) 9.3? (9.>@) 3.7?b (>.7@)
3hailand 9.6@ (9.6>) -9.>6 (-9.3>) -<.87bb (-<.97) @.?>bb (<.@7)
Ganel .rou 6.87bb (<.6?) -9.66 (-9.66) ->.<6 (-6.<?) 8.86b (6.98)
=ote: 3he null hyothesis "or the t-ratio is R9P8iP91 Figures in arentheses are t-statistics. b and b
signi"icant !ith 7@c (79c) con"idence level
13
In 3a#le >.3% !e "ound that the estimate o" the coe""icient "or 4GE==E++ is ositive
(@.@@ and 6.33) and statistically signi"icant at the 6 ercent level "or Indonesia and Aalaysia.
Aean!hile% +ingaore has a negative coe""icient (->.6?) and statistically signi"icant at the 6
ercent level. 2e conclude that there is a resence o" a long run relationshi #et!een FDI and
4enness "or Indonesia% Aalaysia% and +ingaore. 2e "ound that there is statistically no
signi"icant long run cointegration #et!een HEDEY( and FDI "or )+E)=-@ countries. 3he
coe""icient on F(F is negative1 -<<.?< and -<.87 and statistically signi"icant at the 6 ercent and
@ ercent level "or Indonesia and 3hailand% resectively. 4n the other hand% the coe""icient on
F(F is ositive (<.76) and statistically signi"icant at the @ ercent level in Aalaysia. 3hese
results sho! that there is still a long run cointegration #et!een F(F and FDI.
2e "ound .DG has a ositive coe""icient (39.83% 3.7?% and @.?>) and statistically
signi"icant at the 6 ercent level in Indonesia% +ingaore% and 3hailand. 3here"ore% .DG
ositively a""ect FDI and there is a long run cointegration #et!een the .DG and FDI.
;. CONCLUSION
3his study e'amines the determinants o" "oreign direct investment in"lo!s into (hina
using the anel cointegration aroach. 3he unit root test (IG+) is used to con"irm the stationarity
o" all varia#les #e"ore the cointegration test can #e er"ormed. )"ter con"irming that all varia#les
are non-stationary at level% the anel cointegration aroach is alied. *sing Gedroni0s% the long
run cointegration test is er"ormed to investigate the e'istence o" the long run cointegration
among the varia#les. Hesults o#tained indicate the resence o" the long run relationshi #et!een
FDI and 4GE==E++ "or Indonesia% Aalaysia and +ingaore. Ro!ever% there is statistically no
signi"icant long run cointegration #et!een HEDEY( and FDI "or )+E)=-@ countries. For the
case o" Aalaysia% the coe""icient o" F(F is statistically signi"icant !ith the value o" <.76 and
there"ore !e can conclude that there is still a long run cointegration #et!een F(F and FDI.
2e "ound an indication that imroving the e'change rate o" (hina relative to each o"
individual )+E)= countries% .ross domestic roduct (.DG)% and "i'ed caital "ormation (F(F)
are crucial as art o" "uture olicy to "urther attract ne! FDI to in"lo!s into (hina. 3he lo!
imact o" HEDEY(% .DG% and F(F do suggest that (hina is yet to em#ar& seriously in this issue
and results could #e di""erent in the "uture. 3his is #ecause% these indeendent varia#les could
also serve as a cost o" doing #usiness and imrovement !ould surely #e a#le to reverse the
14
in"lo!s into (hina. 3here is room "or (hina to imrovement o" e'change rate% .DG% and "i'ed
caital "ormation as attraction "or FDI to in"lo! into (hina. 3his could #e e'lained #y the "act
that although )+E)= as a !hole is not as oulous as (hina% the urchasing o!er o" )+E)=
is actually higher than (hina and there"ore% could serve as a good avenue "or high 5uality
roduct o" multinational cororations. Finally% the imact o" trade oenness is ositive and
signi"icant% imlying that maintaining the level o" oenness could #e another good olicy.
)lthough (hina0s accession into 234 !ill have an imact on )sian countries% esecially
!hen (hina0s FDI inta&e and glo#al share have increased in a eriod !hen glo#al FDI in"lo!s
have contracted% (hina0s rise should #e interreted as t!in oortunity. 2hile FDI "urther
romote (hina0s e'ort% it also e'ands its domestic mar&et !here )sian countries and regions
directly #ene"it #y recording surging e'orts to (hina. )t the same time% (hina0s cost
cometitiveness "orces )sian countries to move u the value chain #y shi"ting "rom lo! tech
manu"acturing to higher value added% ushing "or economics as !ell as industrial trans"ormation.
It !ould ta&e several years0 time #e"ore (hina e'orts FDI in signi"icant amounts. )sian
countries should ta&e this oortunity to actively ursue% instead o" encum#er economic
cooeration and "ree trade !ith (hina.
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15
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16