Investigation of the Cross-border Investment linkages within APEC Economies and identifying Policy Implication |

Investigation of the Cross-border Investment linkages within APEC Economies and identifying Policy Implication


Since its inception in 1989, APEC has striven to achieve the goals of “free and open trade and investment” in the APEC region. In particular, APEC’s investment liberalization and facilitation efforts have contributed to cross border investment between APEC economies. Using the gravity-type regression models, this project aims to establish an understanding of the nature of all types of bilateral investment linkages (FDI, equities, long-term bonds and bank lending) among APEC economies for which suitable data is available for analysis.
The main findings can be summarized as follows:
First, APEC membership has a highly significant positive relationship with all types of financial transactions among members. That is, when compared with non-members, APEC member economies enjoy more investment with other APEC member economies than with non members.
Second, inclusion of the bilateral goods trade intensity variable in the regression model reduces the size of the coefficient for the APEC membership dummy, suggesting that a large part of the regional financial market integration in the APEC region is due to strong linkages of intra-regional trade in the region. This implies that the financial market in the APEC region as a whole is not as fully integrated as the goods market, even though the continuing expansion of intra-regional trade in goods is expected to contribute to the intra-regional financial transactions in the region. Third it has been found that the level of country risk is clearly associated with cross-border flows of financial assets. Specifically, “political risk” of destination economies is found to have a close relationship with inflow of FDI, equity investment, and bank loans. Thus, individual and concerted efforts to improve institutional quality of member economies are expected to contribute to increasing financial transactions in the region. Other aspects such as more stable political systems, improvements in socioeconomic conditions, reduction in corruption and enhancement of law and order are all important objectives in and of themselves and will obviously contribute to greater investment flows.

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Lee Hyun Hoon, Senior Analyst, APEC Secretariat

Wednesday, 13 January 2010
12.15 p.m. - 1.30 p.m.

Seminar Room 3-5
Level 3, Manasseh Meyer
Lee Kuan Yew School of Public Policy
469C Bukit Timah Road
Singapore 259772

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