Assessing the impact of geopolitical risks on foreign direct investment in the ASEAN+3

Abstract

This research examines the impact of geopolitical risk and the geopolitical risk gap between the United States and ASEAN+3 countries on foreign direct investment inflows to ASEAN+3 countries from 1986 to 2023. The panel data regression method is employed. The generalized least squares model is the most suitable and practical approach. The regression results indicate that the geopolitical risk gap between the United States and ASEAN+3 countries have a significant impact on foreign direct investment inflows to these countries, whereas the geopolitical risk of each country does not affect foreign direct investment. Additionally, some control variables, including economic growth, interest rates, investment in research and development, and trade, also influence foreign direct investment. This paper provides evidence of changes in foreign direct investment under the impact of the geopolitical risk gap between ASEAN+3 countries and the United States, demonstrating the impact of geopolitical risks in developed countries on developing countries. The research results suggest that trade and diplomatic policies in ASEAN+3 countries should be employed to mitigate the adverse impact of the geopolitical risk gap.