Singapore: ISEAS – Yusof Ishak Institute, 2017. xix, 231 pp. (Tables, graphs.) US$29.90, paper. ISBN 978-981-47-6240-3.
Outward foreign direct investment (OFDI) in ASEAN has increased rapidly in the past two decades. This book, edited by Cassey Lee and Sineenat Sermcheep, contains a series of chapters that cover various aspects of OFDI in ASEAN, as the title suggests. The first three chapters provide background, stylized facts, and cross-country analyses from a regional perspective. The next five chapters discuss country case studies of OFDI from Singapore, Malaysia, Indonesia, Thailand, the Philippines, and Vietnam. The last chapter looks at Myanmar as a recipient of FDI from other ASEAN countries. Altogether, empirical evidence documented in this edited volume suggests that there are diverse factors driving OFDI in ASEAN countries and industries. The case studies in this book illustrate the role of trade and domestic policies and also highlight the rising importance of OFDI from more developed ASEAN countries to less developed ones.
There are several reasons that this book deserves high praise. First, it is one of the first that covers OFDI in ASEAN systematically, providing a basic framework, crucial stylized facts on both historical development and the current situation, and illustrative case studies. It is an important topic but is currently understudied—almost all studies about foreign direct investment in ASEAN have focused on the role of inward foreign direct investment (IFDI) from higher-income countries. Foreign direct investment covered in this book is different. With the exception of Singapore, ASEAN countries that are active in OFDI have not yet achieved high-income status—even in the case of Singapore, which began its promotion of OFDI over three decades ago when the country had much lower income than today. The intellectual contribution of the book alone makes it a must-read for anyone interested in ASEAN in particular, and in economic development and international trade in general.
Second, the various authors are successful in positioning OFDI in the larger context of the economic development of Southeast Asia, convincingly and seamlessly drawing parallels to development strategies adopted by the countries in this region since the end of the Second World War. Specifically, while abundant labour and shortage of capital and knowledge have driven inward foreign direct investment in earlier stages of development, capital accumulation and labour shortages have tilted these economies towards outward foreign direct investment in recent decades. The sequence of the adoption of IFDI and OFDI over time is in turn a reflection of the limitations imposed by the size of a country’s domestic economy, starting from the smallest, Singapore, to Malaysia, and so on.
Third, the book demonstrates how OFDI is one of the salient features that characterizes a higher degree of regional economic integration achieved by ASEAN member states. Although IFDI from outside the region remains high, intra-ASEAN FDI has become increasingly prominent. In this sense, although the diverse economic structures and development levels across the region may hinder certain economic and political collaborations between ASEAN countries, these exact differences make possible the benefits from economic integration, as capital and technologies flow from the more developed members to the less developed ones. The last chapter of the book, which covers Myanmar as a destination for OFDI, nicely illustrates this point.
However, there are certain crucial issues that are absent from the book. Although the authors use specific company examples to illustrate or support their arguments in various places, most discussions and analyses are from macroeconomic, or industry, perspectives. Given that international trade, and even more so foreign direct investment, has been concentrated among a few players, the minimal treatment of a firm-level approach in this book prevents it from contributing to current literature on international trade and investment that focuses on micro-foundation. After all, countries neither trade nor invest, but firms do. Paying attention to the behaviours of traders and investors is necessary for the understanding of the development and prospects of OFDI in ASEAN.
And though the role of sovereign wealth funds (SWFs), state-owned enterprises (SOEs), and government-linked corporations (GLCs) in OFDI are significant investors, the analysis of state capitalism and political economy of OFDI is absent in this book. SWFs have been expanding in the region both in number, size, and destination; their ventures are diverse and involvement strategies in their investments range significantly from the highly passive to the relatively active. Cross-border mergers and acquisitions by foreign GLCs and SOEs are becoming more common in the region, bringing with them not only opportunities but also challenges to home and host countries. These aspects need to be brought into the discussion if our goal is to understand the motives as well as the costs and benefits of OFDI in ASEAN.
Finally, the book rightly points out that the rising OFDI is a part of the growing regional production networks where firms divide their production process into pieces conducting each stage of production in different countries. This is an important phenomenon that transforms the landscape of international trade globally, especially in Asia. However, the book stops short of delving into detail of how OFDI in ASEAN is related to the development of production networks in the region. Unlike the literature on IFDI in ASEAN that generally integrates international investment and international trade, this book does not seem to incorporate sufficient international trade factors into the analysis of OFDI even though these factors seem inseparable in many cases, especially those related to regional production networks.
Krislert Samphantharak
University of California, San Diego, USA