Causality on Outward Foreign Direct Investment and Domestic Investment in Newly Industrialized Asian Countries

For the past two decades, outward foreign direct investment (OFDI) from newly industrialized countries has substantially increased. Given the role of physical capital accumulation in determining economic growth, it is crucial to evaluate how domestic investment (DI) responds to OFDI. This study empirically examined the effects of OFDI and DI in newly industrialized Asian countries, using data from 1990 to 2011. The results suggested that: (1) a short- run unidirectional causality running from DI to OFDI exists in China, Japan, and South Korea; (2) both long-run and strong unidirectional causalities running from OFDI to DI exist in Singapore and Taiwan; (3) only China exhibits both long-run and strong unidirectional causalities running from DI to OFDI; (4) policies for promoting OFDI may not affect DI in Indonesia, Malaysia, Philippines, and Thailand. Finally, policy implications are provided in the final section of this study