PUBLICATIONS & REPORTS

Contents Introduction

This paper examines recent trends in foreign direct investment (FDI) in Asia and the relationship of those trends to other economic activities of multinational corporations (MNCs) in the region. The paper first examines trends in aggregate FDI and FDI income, showing that inward flows remained remarkable robust in most of these economies even after the Asian financial crisis. Second, patterns of investment by country and by industry are examined. Here it can be seen that a large portion of the FDI in these economies comes from other Asian economies, though there is also a large European and U.S. presence as well. Industrial patterns vary across economies with manufacturing, trade, and finance being among the major sectors for FDI and MNCs. Third, the paper compares trend in FDI and other indicators of economic performance in MNCs in Asia. In this regard, the paper emphasizes that there are often large differences in trends in FDI flows, on the one hand, and trends in other indicators of economic activity in MNCs such as stocks and flows of fixed assets, employment, production, and exports, on the other hand. Correlations between FDI stocks and these other indicators are somewhat higher but even in this case there are sometimes important differences in trends. Thus, although trends in FDI flows are an important indicator of investor sentiment in the MNCs undertaking FDI, trends in FDI are often poor indicators of trends in other economic activities of MNCs. This means that economists and other observers must be very careful when interpreting the meaning of trends in FDI flows.