For south, east and south-east Asia, there was an increase of 3.3% to $256.1bn. This region is the largest recipient of FDI among developing economies, accounting for almost half of inflows to developing countries and 17.7% of world inflows.
The capability of firms to invest in Asia has been reduced by a fall in access to financial resources and by negative economic prospects. Yet despite a decline in FDI flows, there is no sign that the crisis has negatively impacted upon Asia’s relative size of FDI stocks. As for Asia’s excessive trade export dependency, the crisis has exposed how vulnerable Asia is to a global demand slump. This explains why the International Monetary Fund has said that intra-regional trade is the key to Asia’s export boom.
One solution is the implementation of economic and industrial policy reform. Public policies will play a major role in the implementation of favourable conditions for a quick recovery in FDI flows and Asian governments have already implemented monetary and fiscal stimulus packages. Production is also being regionally integrated in Asia – this has become central to Asia’s leadership in global manufacturing.
Furthermore, Asia is working on its financial market integration through innovations such as the Asian Bond Markets Initiative and the Asian Bond Funds. Management of macroeconomic interdependence is another priority. This will mean reorienting output from exports outside Asia to consumption and investment in Asia. Another solution is to co-ordinate social and environmental policy to ensure fair treatment of migrant workers, etc.
Once the crisis has abated, what is a worthy goal to aim for? An Asia economic union? In this uncertain yet constantly changing world, anything is possible.
Lawrence Yeo is CEO of AsiaBIZ Strategy, a Singapore-based consultancy that provides Asia market research and investment/trade promotion services.