FDI and Industrialization: Evidence from Selected Asian Developed and Developing Countries

Abstract

The objective of this study was to analyze the role of FDI in the industrialization of both developed and developing economies in Asia. This study primarily seeks to examine the way(s) through which FDI can be a positive or negative driver for industrialization within these diverse two economies. The research have adopted an ex-post facto design, which is characterized by the inability to manipulate the data, ensuring the analysis is based on actual historical events and trends. The study have focused on five developing and five developed economies within Asia, encompassing a data span of 29 years (1990–2018). To estimate the influence of FDI and other variables, the research study have applied panel data regression and have applied the Fixed Effects Model (FEM) to account for variations across countries. Alongside FDI, other key variables has been incorporated into the analysis included inflation, trade, labor participation rate, and gross capital formation. The outcomes have revealed a nuanced relationship between FDI and industrialization: in developing economies, FDI has a positive effect, fostering industrial growth, while in developed economies, FDI shows a negative impact on industrialization. This divergent outcome underscores the different economic structures and stages of industrial development in these economies. Furthermore, in developing economies, inflation and gross capital formation have found to contribute positively to industrialization, suggesting that these economies benefit from capital investment and moderate inflation levels in their pursuit of industrial growth. In developed economies, gross capital formation has also demonstrated a positive influence, while the labor participation rate exerted a negative impact on industrialization, indicating that in more advanced economies, the dynamics between labor and industrial growth may be more complex and potentially hindered by structural labor market factors. These findings offer valuable insights into the varying effects of FDI and other economic indicators on industrialization in Asia’s developed and developing economies.