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Foreign direct investment

FDI in the ASEAN states: The engine that roared

Published 23 November 2021

ASEAN has always been about making things work to attract foreign investment. But this defining model is confronting an increasingly disruptive external and internal landscape that could upend its continued success. After enjoying favorable economic tailwinds for several decades, Southeast Asia must demonstrate that it is able to navigate climate and geopolitical headwinds.

FDI is the engine that has propelled economic growth in Southeast Asia over the last few decades. The region, grouped together as the Association of Southeast Asian Nations (ASEAN), has astutely used foreign investment and know-how to upgrade technology and skills and to transition from a low-cost manufacturing model to high-value goods and services. This openness to trade and investment has transformed the region’s economic fortunes, with front-runners such as Singapore, Vietnam, Malaysia, Cambodia, and Thailand at the vanguard of global manufacturing in fields as diverse as electronics, automobiles, pharmaceuticals, and textiles.

ASEAN’s success as a manufacturing hub would not have been possible without both an openness to trade and the presence of regional supply chains that favorably position Southeast Asia as an essential supplier of raw materials and key components for final assembly in China. At the same time, however, it is becoming more difficult for ASEAN to navigate the uncertainties spilling into the investment environment from three areas often outside its control: geopolitics and decoupling, deglobalization, and climate change. In this essay, Vasuki Shastry, Associate Fellow in the Asia-Pacific Programme at Chatham House, examines both the tailwind trends behind ASEAN’s success in becoming a leading region for FDI and the headwinds that threaten to slow its ascent.

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Vasuki Shastry is an Associate Fellow in the Asia-Pacific Programme at Chatham House (United Kingdom), where his research interests are Asian economic and financial integration and the interplay between technology and democracy.

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