The Future of Foreign Investment in Southeast Asia

Field: Economics, Econometrics and Finance (Social Sciences)

The Future of Foreign Investment in Southeast Asia. Edited by Nick J. Freeman and Frank L. Bartels. London and New York: Routledge Curzon, 2004. Pp. 288. Ever since Singapore took the bold step towards attracting foreign direct investment (FDI) in the 1970s, and grew to be a success, the other Southeast Asian economies did not wait too long to follow suit albeit at a slower pace, and today, there is such stiff competition among the economies to woo FDI for sustained economic growth. Thus, for Southeast Asia, FDI has become somewhat a necessity, and this underscores the importance of the contribution of this book. In addition, much has changed in the circumstances surrounding FDI - the type of economies courting FDI, differences in the kind of FDI sought, the reasons and policies in place for attracting FDI, the nature of parent companies, the effects on and from FDI due to the increasingly globalized environment in the face of liberalization,... The list is endless, and thus the book is a timely welcome to take stock of what has happened and to discuss the future direction of the all-important FDI for this region. While it is a tough task to present the various facets of the dynamism around FDI in the region in a single volume, the editors of the book have done a good job in the selection of topics which are wide ranging and provide much scope for discussion. Incidentally, I would like to suggest that after the introductory chapter, readers move on to the last chapter by Hal Hill as it is a good review and a critique (to some extent) of the chapters presented in this book. I am not sure whether this made my task of reviewing the book an easy or difficult one. Nevertheless, in retrospect, it is highly recommended that more of the edited volumes take on this integrated approach in order to give the ideas in the book a good bind. It is thus quite appropriate that I start with the last chapter. Let me first say that I agree with Hill's remark that the seriousness of the decline in FDI due to the 1997/98 Asian financial crisis is unduly magnified by some of the other contributors. The discussion and supporting evidence provided by Hill in making this point is convincing. There seems to be a preoccupation with the gloom brought about by the crisis, and perhaps this might have been the case at the time of writing. I also disagree with the notion that policy-makers in Southeast Asia are slow to recognize and react to the sorts of changes in global business and FDI activity. While there may be some isolated support for this, one can also ask if being cautious and ensuring that one is ready before reacting impulsively qualifies for such criticism. Economies within the region operate quite differently and institutions in place dictate the pace of reaction to FDI activity and policies governing FDI. In addition, there is a subtle contradiction in two related views of Hill's. One advocates that Singapore be emulated by the other Southeast Asian economies and another strongly advises that economies move away from the second-best approach of proving incentives to adopt the first-best approach of addressing the source of unattractive features of the host economic environment. When Singapore first started courting FDI, the so-called second-best approach was an important feature and, in essence, was the optimal strategy at that time. Today, a mixed rather than the first-best approach defined by Hill would be best - that is, a combination of both approaches. In times of stiff competition to attract FDI, economies have little choice but to provide incentives in addition to improving the economic and business environment of their economy, or they stand to lose more than they gain in terms of luring FDI. …