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Foreign Direct Investment Inflows and Technological Spillovers: A Statistical Evaluation of the ASEAN Manufacturing Industry
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Abstract
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Developing countries consider foreign direct investment to be their primary financial resource which also brings new technological advances to their nations, yet researchers are still debating how much technological knowledge foreign direct investment delivers to various regions. The research investigated how foreign direct investment leads to technological advancements in the manufacturing sector of ASEAN member states between 2000 and 2022. The study utilized an autoregressive model with panel lags which analyzed data from ten member countries, including Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. The researchers developed a composite absorptive capacity index through principal components analysis which measured three different components: human capital, information technology infrastructure and institutional quality. The research results demonstrated that foreign direct investment positively impacts labor productivity in the ASEAN manufacturing sector through permanent effects which showed an elasticity coefficient of 0.234 for the complete sample. The relationship between member states and foreign direct investment shows different effects which reach their highest point in upper-middle-income countries with an elasticity of 0.256 and drop to their lowest point in high-income countries which have an elasticity of 0.178. The entire sample showed that absorptive capacity created a positive and significant moderating effect which reached 0.078 for the relationship between foreign investment and productivity. This effect became more powerful in low-income countries which produced a coefficient of 0.112. Granger causality tests demonstrated that foreign investment drives productivity growth while human capital and absorptive capacity enable foreign investment. The supplementary analyses at the manufacturing industry sub-sector level found that the electronics industry achieved 0.312 spillovers while the automobile industry reached 0.278 spillovers and the food industry experienced 0.123 spillovers while the wood industry had 0.078 spillovers. The study establishes that FDI technological spillovers do not occur automatically or uniformly across environments because their implementation depends on three specific factors which include developmental progress and host country absorptive capacity and industrial characteristics. The ASEAN experience shows that foreign investment attraction requires an integrated approach which combines targeted investment incentives with simultaneous education development and research development and institutional quality improvement.
Keywords:
FDI
Technological Spillovers
Absorptive Capacity
Manufacturing Industry
ASEAN
Labor Productivity
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