FDI, Growth and the Asian Financial Crisis: The Experience of Selected Asian Countries

Abstract This paper studies the trends in foreign direct investment (FDI) flows into selected South‐East Asian and East Asian economies after the Asian crisis. Empirical evidence indicates that South‐East and East Asian economies are recovering from the Asian crisis with strong output growth driven largely by export growth. However, output growth in the post‐crisis period is also accompanied by rising unemployment rates, growing government deficits, and declining FDI inflows into the South‐East Asian region. The declining FDI inflows into South‐East Asia after the crisis is of concern, as our empirical results show that FDI is important for output growth in the region. Our results also suggest that there might have been structural changes in the regional economies that could have led to a downward shift in the output growth of Asian economies in the post‐crisis period. This raises the issue of the sustainability of their output growth in the post‐crisis period.