Khóa luận tốt nghiệp Tài chính ngân hàng: The impact of WTO accession on Foreign Direct Investment in ASEAN countries

VIETNAM NATIONAL UNIVERSITYUNIVERSITY OF ECONOMICS AND BUSINESS GRADUATION THESIS 2023 THE IMPACTS OF WTO ACCESSION ON FOREIGN DIRECT INVESTMENT IN ASEAN COUNTRIES Supervisor MSc... VIET

VIETNAM NATIONAL UNIVERSITY

UNIVERSITY OF ECONOMICS AND BUSINESS

GRADUATION THESIS 2023

THE IMPACTS OF WTO ACCESSION ON FOREIGN

DIRECT INVESTMENT IN ASEAN COUNTRIES

Supervisor MSc Do Dinh Dinh Student name Hoang Thi Thao Van Student ID 19050774

Major Finance and Banking Intake K64

School years 2022-2023

Hanoi - 2023

VIETNAM NATIONAL UNIVERSITY

UNIVERSITY OF ECONOMICS AND BUSINESS

GRADUATION THESIS 2023

THE IMPACTS OF WTO ACCESSION ON FOREIGN

DIRECT INVESTMENT IN ASEAN COUNTRIES

Supervisor MSc Do Dinh Dinh Student name Hoang Thi Thao Van

During the time of researching and implementing this research topic of my graduatethesis, I have received very enthusiastic help and valuable encouragement With all duerespect and gratitude, the team would like to express our sincere thanks to:

I would like to express my sincere thanks to the teachers and experts of the Faculty ofFinance - Banking and other faculties in the school for taking the time to answer andanalyze questions, contributing to creating a foundation for me to be confident inperforming the research

I would like to express my deepest gratitude to Mr Do Dinh Dinh - who directly guides

me He is a very enthusiastic person, always dedicated to guiding, and giving appropriatedirections and advice whenever I have problems and difficulties Not only that, but he alsoalways encouraged and supported me to have the most comfortable spirit when doing thisresearch

For the first time making a graduate thesis, I still have many limitations and cannot beblamed for mistakes I look forward to receiving your comments and suggestions toimprove the research paper I hereby declare that this thesis is my own, the data andresults in this thesis are true!

I hereby affirm that the research paper titled "The impact of WTO accession on FDI inASEAN countries" is entirely my own work and has not been plagiarized from any othersources The topic, methodology, model, and content of the report are the result of myindividual research efforts The data and results presented in the report are completelytruthful and do not utilize the findings of any similar research I take full responsibility forthis declaration before the academic institution and faculty and will bear anyconsequences if any issues arise

Table of Contents

ACKNOWLEDGEMENTS ăn rahthrrrersrsrsrirrrrsrsrsrsrrirrersrsrir 3

DECLARATION sesssssssssssesesssnsnsnsnenenenesnsnsnsnanenssananansnsnensananansnensnenensesansnanansssesesesansnsnensncensnsnscsnsnsnsenenens 4

LIST OF ABBREVIATIONS wassessssesssssvsssnsnsnssssssnsvsnsnsnsnsevsvsnsnsnsncncevsvsnsnsnsnsncevsnsnsnsnsnencssnsesssnsnensessnsnsnes 7

CHAPTER 1: INTRODUCTION cescsssssssssssssssssesesnsscscsssesessnsnsessvsnssesnensevsnsnsesesnsnsevensnsnsnsnensnsensesesnsnees 8

1.1 The Urgency Of tOPiC sscscsssssscssseseeeeeeseseesseeeeneeseeeseeeeeseneneeeeeseeesensneeeesseeeenenseseeeeeneneneneneaes 8

1.2 Research OVELrVICW csssssssssseseeeeeseeeneceeeseeeeseeereceneseeseroeeneceneneeeeeasenenenenenroreneneneneeeeeernenenensaes 9

1.2.1 Foreign researches 00 cesssessssscsssessessseesseessessseesseesseessessneeseeaseeseesseeaeeeneeateeateeateenteensees 91.2.2 Domestic researches .cccssesssssssesssesssesssesssesssesseeessecssecseesseesssecseesseeeseecsserseeeseeeneesseesseeees 10

1.2.3 ResearCh ØaD sàn HH HH ng KH HH Hà HH HH HH nành ph nghe nhiệt 11

1.3 Research Object and SCOD© ssesssssrsrsksEEerereririiirrirrsisirarararsisisrrsrae 11

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1.6 Structure Of reSCALCh o«cscsseseskesrirtrrsrrsrirrsrrrsirarssrsrsrrarsrrrsrsarsrsirrsrsar 13

CHAPTER 2: LITERATURE REVIEW Qasssssscssssssssscscsssssessnsnssssssnsnsnsnenessenssnstsnsnsssensnsnsnsnenessensnansssss 14

2.1 World Trade Organization (WTO) and the impact of WTO accession 142.2 Foreign Direct Investment (EDI) essssesesesrsrsrstterrrsrrsrsrsrsrrararsre 152.3 Limitations Of preVÏOuS SEU[Ï@S -.-ccssssesesrerersrseersrrrsrrirrrersrsrsrsrsrae 17

2.4 Overview of the status of the impact of WTO accession on FDI in ASEAN

COUNTYICS cscecseseseeeeseeeeeeeeeeeeeneveveeeoeeeeeseseeenenenaeaeoeoeoeseeeeenesevavavavororonoeseseneueuavaroreroeeesenenenenarnonoranes 17

2.4.1 Situation of attracting foreign investment in ASEAN 172.4.2 Impact of WTO accession on FDI in developing countries in ASEAN 18

CHAPTER 3: RESEARCH METHODOLOGY -c-e5=c«esseersrerrsrserrrsrrrrsrrrrsrsrrsrsrrrsre 20

3.1 Data and sample CỌÏ€CtÏOIA «.«-sssssesesrsrsrsrststreerrrsrrrsrsrrrrrararsrsrsriirrirrsrsre 203.2 DeSCriptive ANALYSIS «SH HHHYHHHHHHHHHHHHRHHEEEEEEEESESErrie 20

CHAPTER 4: RESEARCH RESULTS AND DISCUSSION e series 21

4.1 DeSCriptive SAfÏSLCS c SH HH HH HRHRREHRRESEEEEEEEESEEEEEAEEEE 21

4 2 Pooled model OLS c«cceseseskskskeesrsrsrrtsEeerrsrsisBeirsrsrsiHniisrrsrssaee 23

4 3 Fixed-effects model EEÌM seesesesrsrsttrerersrsrsrsrsrsrrrarsrsiriiirararsrssae 24

4 4 Random effects model REM -.-. «ssseesrsrkrsrksesrrrrrirrarrersrsrsrsrsrie 27

4 5 HAUSMAN tOSt ecsseseesseeseeseenenenenseeneseeneneceneneeareceneneneneorereceneneneseaeaeauecenenenearareueueneneneaeanenes 29

REFERENCES HH H1101xAR1E1ESESEEEESESESESESEEEEEEESESESEEEEEEEEEESESESfiSEE 36

LIST OF TABLES

Table 4 1 Descriptive SfatÏSCS «th Hàn hành hà hà hành nàn niệt 22

Table 4 2 Pooled model OLS wo 7 23Table 4 3 Fixed-effects model FEM eessessssesssssessesssesssesseesstecstecseesseessteeseesstecaeecsteeseesseesneenseesneenss 25Table 4 4 Redundant Fixed Effects 'T@SES 55c triệt 26Table 4 5 Random effects model REM s cs+srxserxerrrrrrtrrrrrrrrrrrrrrrrrirrirrrrrrrerrrerrtee 27Table 4 6 Hausmann teSt eeeessessssssessessseestecseeseesseessecsneesecseeaecsecseecseesteenseeaeeeseecatesatesseesaeesneenaeesseesee 29Table 4 7 Residual Cross-Section Dependence 'T©SE -c cccccscsexrerrekertrerrrrrrrrrrrrrree 31

LIST OF ABBREVIATIONS

Abbreviations | Full writting

WTO World Trade Organization

ASEAN Association of Southeast Asian Nations

FDI Foreign direct investment

EXR Exchange rate

GDP Gross domestic product

IMPORT Import of goods and services (% GDP)

EXPORT Export of goods and services (% GDP)

CHAPTER 1: INTRODUCTION

1.1 The urgency of topic

FDI is an important resource to help countries develop their economies and improvepeople's quality of life However, the impact of FDI on the economy of each country is not

uniform and can depend on many different factors, including WTO policy The accession

to the World Trade Organization (WTO) has had a great impact on foreign directinvestment (FDI) activities in ASEAN countries According to economic experts, thisaccession has helped ASEAN countries increase their attractiveness to FDI, facilitate theimplementation of FDI and promote the development of local economic sectors One ofthe main effects of WTO accession on FDI in ASEAN countries is to enhance theattractiveness of ASEAN countries to FDI This accession has helped ASEAN countriesimprove political stability and enhance the competitiveness of economies in the region.This has created more favorable conditions for international investors to invest in ASEAN

countries

In addition, WTO rules and commitments on open markets and other trade regulationshave also helped ASEAN countries create favorable conditions for the implementation ofFDI This includes both reducing foreign investment limits and improving the businessenvironment As a result, foreign investors have easy access to and invest in the markets

of ASEAN countries Besides, the accession to WTO has also promoted the development oflocal economic sectors This has helped ASEAN countries develop new economic sectorsand improve the competitiveness of local economic sectors This has helped foreigninvestors find investment opportunities in these new economic sectors, as well as helpedASEAN countries strengthen multilateral cooperation and facilitate the implementation

of FDI projects However, WTO accession also poses some challenges for ASEAN countries

in foreign direct investment activities In order to compete with foreign enterprises,businesses in the region need to improve their competitiveness This requires enterprises

to invest in research and development, improve the quality of products and services,improve production processes and management, and improve the quality of humanresources The implementation of WTO rules and standards requires member countries

to have a solid legal system and meet the requirements of the international market Thisrequires member countries to invest in improving legal and regulatory systems,enhancing law enforcement capabilities and ensuring compliance with WTO rules and

standards In addition, there are many other factors contributing to the impact onASEAN's FDI flows after joining the WTO.

Recognizing the above situations, I realize that the topic "The impact of WTO accession

on FDI in ASEAN countries" is very urgent and meaningful for the study of the economyand development of the ASEAN region, as well as general international economicrelations The study will contribute to assess the impacts of WTO accession on foreigndirect investment in 10 countries in ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia,Myanmar, Philippines, Singapore, Thailand and Vietnam), thereby makingrecommendations policy for ASEAN member countries to enhance competitiveness andattract FDI, contributing to the economic development and growth of the region

1.2 Research overview

1.2.1 Foreign researches

Foreign studies on the impact of the World Trade Organization (WTO) on foreign directcapital (FDI) flows have provided different views on the impact of the WTO on FDI Somestudies show that the WTO has a positive effect on FDI, while other studies indicate thatthe WTO can have a negative effect on FDI

Studies (Chen, 2009; Sauvant, 2014) have shown that WTO regulations can increase ease

of investment and trade, reduce risks for investors, and lead to increased FDI inflows .However, WTO rules can also cause unnecessary barriers to investment or enforce strictregulation on technology transfer, resulting in a loss of competition for investors Inaddition to the impact of the WTO, studies have also shown that other factors can alsoaffect FDI, including tax policies of countries and political stability Research by Zhu(2014) shows that WTO accession has increased FDI in ASEAN countries, especially inVietnam and Thailand The study uses statistical data analysis to assess the relationshipbetween WTO accession and FDI in ASEAN countries, based on data and economicindicators collected from reliable sources This study also shows that WTO regulationsand standards have contributed to attracting FDI into these countries The study byHasebe and Hamanishi (2016) uses economic data and indicators, including information

on FDI, investment policy and trademark protection in ASEAN countries after WTOaccession Then, they applied statistical analysis methods to evaluate the relationshipbetween these factors and their impact on FDI in ASEAN countries Specifically, the studyuses methods such as regression analysis to measure the correlation betweenindependent and dependent variables, or multivariate analysis to determine the impact

of many independent variables on one dependent variable The authors focus on theinfluence of investment and trademark protection policies on FDI in ASEAN countriesafter WTO accession The results show that these policies have increased FDI in thesecountries, especially in Vietnam and Indonesia.

1.2.2 Domestic researches

The accession to the World Trade Organization (WTO) has created many great impacts onVietnam's economy, including the impact on the field of foreign direct investment (FDI).Since joining the WTO in 2007, Vietnam has attracted a large amount of FDI fromcountries around the world Many domestic studies have focused on assessing the impact

of WTO accession on FDI in Vietnam

Hanh's study (2011) uses the model of increasing gravity to analyze the impact of WTOaccession on Vietnam's trade and FDI in the period from 1990 to 2008 The results showthat the increased WTO accession has had a significant positive impact on imports andFDI into Vietnam Chi Hieu and Le Minh Huong (2013) assessed the impact of WTOaccession on FDI] in the manufacturing sector in Vietnam Research shows that joining theWTO has significantly increased the amount of FDI invested in manufacturing industries

in Vietnam, especially in the field of electronic manufacturing Le Trung Thanh andNguyen Thi Thu Hien (2018) assessed the impact of WTO accession on Vietnam'sinvestment policy Research shows that WTO accession has produced a number ofchanges in investment policy, including increasing transparency, reducing risks forforeign investors, and increasing Vietnam's attractiveness to FDI Tran Dinh Thien (2008)assessed the impact of WTO accession on FDI in Vietnam Research shows that, althoughWTO accession did not change Vietnam's investment regime, it did help increasecompetitiveness and present new opportunities for foreign investors Pham Dinh Duc(2010) analyzed the impact of WTO accession on Vietnam's FDI policy Research showsthat WTO accession has produced a number of policy changes, including improvedinvestment regulation, increased transparency, and reduced risks for foreign investors

Most studies also show that, although there is no convincing evidence that WTO accessionaffects Vietnam's exports, this accession has encouraged exports through the FDI channel.This can be explained by the closeness between foreign direct investment and tradechannels, in which FDI can act as a bridge to enhance Vietnam's export activities.However, some other studies (Tran Dinh Thien, 2008; Pham Dinh Duc, 2010) argue thatthe impact of WTO accession on Vietnam's FDI is insignificant or only moderate in nature

These researchers argue that although WTO accession may create some benefits forVietnam's FDI, there are also limitations and challenges, such as difficulty in adapting toWTO regulations, strong competition from other member states and delays in improvingVietnam's investment climate.

1.2.3 Research gap

Foreign studies (Zhu, 2014; Hasebe and Hamanishi, 2016) on the impact of WTOaccession on FDI in ASEAN countries show that WTO regulations and standards haveenhanced competitiveness and attractiveness FDI in ASEAN countries, especially inVietnam and Thailand Investment policies and trademark protection have also increasedFDI in these countries In addition, regulations on intellectual property have promotedeconomic development and investment in the high-tech sector in Vietnam However,ASEAN countries also face challenges such as stiff competition and requirements onenvironmental protection and labor rights Therefore, member countries need to improvetheir competitiveness, invest in research and development, and promote the effectiveapplication of WTO standards and regulations From there, ASEAN countries can takeadvantage of the benefits of WTO accession to develop their economies and improvepeople's lives.

In addition, a number of domestic studies have also provided further analysis on thetransmission mechanism of the impact of WTO accession on FDI in Vietnam Furtherstudies on the transmission mechanism of the effects of WTO accession on FDI in Vietnamoften use statistical and model analysis methods In summary, studies on the impact ofWTO accession on FDI in ASEAN countries and Vietnam have used different researchmethods such as regression analysis, model analysis, The results shows that WTOaccession has increased FDI in ASEAN countries, especially in Vietnam and Thailand, andinvestment and trademark protection policies have also contributed to this FDI attraction.However, to assess the impact of WTO accession on FDI in a country, it is necessary toconsider in the comprehensive context of that country's economy and the world

1.3 Research object and scope

1.3.1 Research subjects

The object of the study is to use statistics on foreign direct investment (FDI), exchangerate (EXR), GDP growth, and other economic indicators when ASEAN countries enter the

WTO

1.3.2 Research scope

Time scope: study data from 1996 to 2022

Space scope: ASEAN countries

1.4 Objectives of the research

The research topic "The impact of WTO accession on FDI in ASEAN countries” aims toevaluate and analyze the effects of Vietnam's participation in the World TradeOrganization (WTO) on the flow and quality of direct investment foreign directinvestment (FDI) into Vietnam The main purposes of the study include capture andanalyze changes in policies, conditions, and investment environment in ASEAN after WTOaccession; Assess the impact of WTO accession on the amount of foreign direct investment

in Vietnam, including the growth in the quantity and value of FDI; Assess the impact ofFDI on economic, social and environmental development in Vietnam, including jobcreation, production capacity enhancement, and support for industrialization andmodernization country; Identify challenges and barriers to attracting foreign directinvestment to ASEAN countries in the context of deepening international economicintegration and propose solutions and strategies suitable to take better advantage of theopportunities from WTO accession Through the analysis and empirical research results,thereby providing recommendations and solutions for businesses and the internationalcommunity, an overview of the impact of Vietnam's accession to the WTO on FDI.contribute to the decision-making process on investment and economic development ofour country in the future

1.5 Research question

- How has WTO accession affected the amount and value of foreign direct

investment (FDI) in ASEAN?

- Has there been any change in the structure, origin and investment sector of FDI

after Vietnam joined WTO? If so, what was that change?

- What are the main challenges and barriers in attracting and managing FDI in

Vietnam after WTO accession?

- What solutions and strategies can be devised to better take advantage of the

opportunities from WTO accession and attract FDI more effectively?

1.6 Structure of research

The rest of this paper proceeds as follows Section 2 provides the literature review.Section 3 describes the data and our methodology Section 4 presents the empiricalresults Finally, section 5 concludes

CHAPTER 2: LITERATURE REVIEW

2.1 World Trade Organization (WTO) and the impact of WTO accession

The World Trade Organization (WTO) is an international organization headquartered inGeneva, Switzerland It was established in 1995 to replace GATT (General TradeAgreement), and currently has more than 160 members worldwide The main mission ofthe WTO is to help promote free trade globally by negotiating trade agreements andresolving trade disputes between member countries (WTO, 2017) The WTO's tradeagreements include the Agreement on Trade Rules, the Agreement on Trade Policy andthe Agreement on Loans and Investments In addition, the WTO also has a role inmanaging the commitments of member countries to reduce tariff prices, strengthenintellectual property rights and improve trade conditions for developing countries.Essentially, the WTO is an alternative dispute resolution or mediation body that maintainsthe rules of international trade between countries (Vinh, 2012) The organizationprovides a platform that allows member governments to negotiate and resolve tradeissues with other members (WTO, 2020) The focus of the WTO is to provide openchannels of communication regarding trade among members.

However, the WTO has also faced controversy and criticism from policymakers andregulators due to its unequal results in promoting fair trade and affecting many sectors If

a country adheres to strict accession procedures, WTO accession can improve growth inthe years following accession, having a positive long-term effect on the size of thatcountry's economy A previous study found no effect on the growth rates of low-incomecountries, but that study did not consider participation, which is an important component

of follow-up studies on low-income countries WTO accession (Tang and Wei, 2009) InRose's (2004) study, WTO accession for trade flows is partly dependent on trade flows,with benefits likely to be higher when a country is more committed to trade liberalization.Research by Rose (2004) finds that WTO accession increases the value of bilateral tradeflows, but WTO membership itself does not However, there is little evidence that WTOmembership has a statistically significant effect on trade volatility, as measured by thecoefficient of variation in trade flows

In the study by Tomz et al (2007), it is revealed that trade between WTO members issignificantly larger than assumed based solely on the proximity of national income Othernon-political variables include population Furthermore, research indicates that thebenefits of WTO membership extend not only to full members but also to a large number

of non-members.The authors also find substantial evidence of decentralization ininternational economic agreements and demonstrate that the presence or absence ofhigher-level agreements affects the effectiveness of an agreement The agreementbenefits some countries more than others, and membership has different consequencesfor importers and exporters.

Accession has institutionalized the domestic reform process to the outside through thefulfillment of WTO obligations (Qin, 2007) WTO accession has not only had an impact onChina's industrial structure and overall growth rate, but also on the nature of its industrialand financial institutions The most important criterion for China to join the WTO is toreduce import duties This is comparable to Chow's (2003) study in which a lower tax ratepromotes the import volume of both agricultural and industrial goods, but competitionfrom imports forces the commodity to be imported must be imported into the country.Chinese manufacturers must reduce prices and improve product quality, for the benefit

of Chinese consumers As a result, the impact of lower tariffs and foreign competition hasled to significant changes in China's economic structure, such as changes in the relativeimportance of industries, and of the public sector relative to the non-state sector.

2.2 Foreign Direct Investment (FDI)

Investment is a collection of activities to raise capital and use capital according to aplanned program over a relatively long period of time to obtain greater benefits forinvestors, for society and for the community (Duong, 2023) Foreign direct investment(FDI) is a type of international investment made through the establishment of subsidiaries

to expand the scope of business activities of international companies globally (Nghia,2021) The expansion of production through forms of FDI is not merely internationalfinancial mobility, but with it the transfer of technology, know-how and other assets Theperson who invests capital in direct investment activities is also the user of capital, theinvestor is the manager of investment activities In FDI activities, investors invest capital

in a certain object to increase existing production capacity or create new productionenergy, they can also buy back several shares large enough to participate in management.Managing and operating profit-making business activities (Tu, 2019)

Foreign direct investment is a type of international investment in which foreign investorscontribute a significant portion of capital to establish production and businessestablishments and directly participate in management and administration The study byMakki and Somwaru (2004) provides a list of theoretical determinants of FDI as well as

the impact of FDI on economic growth and international trade Furthermore, theoreticalstudies on FDI have helped to better understand the economic mechanism and thebehavior of economic agents, both at the micro and macro levels, allowing to open newareas of research in economic theory Using the Eclectic Model (Eclectic Model), the paperidentifies the factors that motivate foreign companies to invest abroad relatively ratherthan to export or outsource production for domestic companies Countries that activelypursue export-led growth plans can reap great benefits from foreign investors An export-oriented policy is one that links the average effective exchange rate for exports with theaverage effective exchange rate for imports.

According to Diamond (1965), the prospect of population in capital importing countries

is positive, while the outlook for individuals in capital exporting countries is negative.Diamond (1965) particularly emphasizes the productivity of foreign investment.Otherwise, the countries that receive it may not benefit fully Besides, in the study of Basu

et al (2003), the authors found an even relationship between FDI and GDP growth in atable of 23 countries from Asia, Africa, Europe, and Latin America Trade openness ishighlighted as a key factor affecting growth of FDI They find a two-way correlationbetween FDI and GDP growth in open countries, both in the short run and in the long run,while the long run causes causality from GDP growth to FDI in open economies

However, FDI tends to increase average wages and decrease the number of jobs created

as well as the number of workers receiving insurance FDI can directly enhance local labordemand by establishing new subsidiaries or expanding existing ones (Pandya, 2010) Bypromoting forward and backward linkages, FDI can also increase the volume ofemployment (Ernst, Berg and Auer, 2007; Alfaro et al., 2010) If these foreign enterprisesmake a long-term commitment to the host country, this "crowding" effect may persist.However, there is evidence that FDI has a negative impact on employment in the hosteconomy (Jenkins, 2006) FDI can eliminate less competitive domestic firms, leading tojob losses in host economies Jenkins (2006) attributes the reduction in employmentvolume to FDI related to the acquisition of local businesses and the use of labor-savingtechnologies Furthermore, because multinational companies are free and can moveproduction and work between their branches in different countries, job creation can bevery fluid

2.3 Limitations of previous studies

Research by Tang and Wei (2009); Rose (2004); and Tomz et al (2007) focus only on theimpact of WTO accession on trade flows and economic development, without assessingother impacts of WTO accession for the economy such as impact on competitive dynamics,investment policy and industrial development, etc These studies may be influenced bylocal factors or other factors unrelated to accession to the WTO Therefore, drawingconclusions about the impact of the WTO on countries should be approached with cautionand caution In addition, these studies are primarily based on past data and do notguarantee that similar results will occur in the future WTO impacts can change over timeand are not always easily measurable Therefore, it is necessary to continue to study and evaluate the impacts of the WTO on countries, and at the same time consider other factorssuch as location and time to draw more accurate conclusions

The studies by Qin (2007) and Chow (2007), referring to the effects of China's WTO accession, were conducted prior to 2007 Therefore, these studies may not include the latest effects of China's economic reform process In addition, the above studies only focus

on some specific effects of China's WTO accession, such as the impact on industrialstructure and growth rate Other impacts, such as environmental impacts, consumerbenefits and labor rights issues, are barely mentioned

2.4 Overview of the status of the impact of WTO accession on FDI in ASEAN

countries

2.4.1 Situation of attracting foreign investment in ASEAN

The Association of Southeast Asian Nations (ASEAN) has become an attractive destinationfor foreign investment due to its large population, growing economies, favorabledemographics, and strategic location in the Asia-Pacific region ASEAN comprises tenmember states, namely Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, thePhilippines, Singapore, Thailand, and Vietnam

In recent years, ASEAN has seen an increase in foreign direct investment (FDI) inflows,

with the region attracting a total of $156.5 billion in FDI in 2020, despite the challenges

posed by the COVID-19 pandemic According to the ASEAN Investment Report 2021, FDIinflows to ASEAN member states decreased by 31% in 2020 compared to the previous

year, but the region's share of global FDI flows increased from 8.9% in 2019 to 9.6% in

2020, indicating that ASEAN remains an attractive destination for foreign investors.

The main sectors that have attracted foreign investment in ASEAN include manufacturing,services, and infrastructure Within manufacturing, the electronics and automotiveindustries have been particularly successful in attracting FDI In the services sector,industries such as tourism, finance, and information technology have seen significantinvestment Meanwhile, infrastructure investment has been a key priority for ASEANmember states, with projects such as the development of ports, airports, and roadsattracting significant interest from foreign investors.

To attract more foreign investment, ASEAN member states have implemented variouspolicies and initiatives aimed at improving the business environment and promotinginvestment opportunities These include efforts to reduce bureaucratic procedures,streamline regulations, and improve infrastructure Additionally, ASEAN member stateshave signed numerous free trade agreements and investment treaties with othercountries, which help to promote trade and investment flows between the region and therest of the world.

Despite the positive trends in FDI inflows to ASEAN, challenges remain These includeissues related to corruption, weak rule of law, and inadequate infrastructure in someareas Additionally, the COVID-19 pandemic has had a significant impact on investmentflows, with many investors adopting a cautious approach and delaying investmentdecisions

Overall, ASEAN remains a promising destination for foreign investment, thanks to itsstrong economic fundamentals, growing middle class, and strategic location in the Asia-Pacific region However, member states must continue to address the challenges and worktogether to create a more attractive business environment for foreign investors

2.4.2 Impact of WTO accession on FDI in developing countries in ASEAN

The World Trade Organization (WTO) accession has had a significant impact on foreigndirect investment (FDI) in developing countries in ASEAN (Association of Southeast AsianNations) When a developing country joins the WTO, it agrees to comply with theorganization's trade rules and regulations, which can help to create a more predictableand stable investment environment for foreign investors One of the key benefits of WTOaccession is that it can help to increase transparency and reduce trade barriers, which canimprove the investment climate for foreign investors This can help to attract more FDI to

the country, as investors are more likely to invest in countries that have a stable andpredictable regulatory environment.

In the case of Cambodia, after joining the WTO in 2004, the country experienced anincrease in FDI inflows This was partly due to the removal of trade barriers and thecreation of a more predictable regulatory environment, which made it easier for foreigninvestors to do business in the country As a result, Cambodia's FDI inflows increased from

$174 million in 2003 to $1.6 billion in 2018 Similarly, after Vietnam's accession to the

WTO in 2007, the country experienced a significant increase in FDI inflows, particularly

in the manufacturing and services sectors This was due to the removal of trade barriersand the implementation of regulatory reforms, which made Vietnam a more attractive

destination for foreign investors As a result, Vietnam's FDI inflows increased from $5.1 billion in 2006 to $19.1 billion in 2018.

WTO accession can also help to promote competition and efficiency in developingcountries, which can lead to increased productivity and higher economic growth This canhelp to create a more favorable investment climate, as investors are more likely to invest

in countries with strong economic fundamentals However, there are also potential challenges associated with WTO accession for developing countries in ASEAN Forexample, some industries in these countries may not be able to compete with foreigncompanies, which can lead to job losses and economic disruption Additionally, somecountries may face challenges in implementing WTO regulations and complying withtrade rules, which can create barriers to investment

Overall, the impact of WTO accession on FDI in developing countries in ASEAN is complexand multifaceted While it can help to attract more investment and create a more stableregulatory environment, there are also potential challenges that must be addressed Theaccession of ASEAN member states to the WTO has had a positive impact on FDI inflows,particularly in countries such as Cambodia, Laos, and Vietnam However, it is important

to note that the impact of WTO accession on FDI inflows can vary depending on a variety

of factors, including the size of the economy, the regulatory environment, and the level ofcompetition in the market