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Why FDI IS FLOWING FROM EUROPE TO ASIA? 

Capital account
Foreign portfolio investment
Endogenous growth theory
Sudden stop
Global imbalances
Best insight from top research papers

The flow of Foreign Direct Investment (FDI) from Europe to Asia can be attributed to several factors, as evidenced by the research findings from various studies. Firstly, the rapid growth of pharmaceutical industries in Asia, driven by advanced technology and a significant demand for treatment and cure options, has made the region an attractive destination for European investors, particularly from the European Union (EU) countries. Additionally, low interest rates in advanced economies have prompted massive private capital flows in search of higher investment returns, with emerging market economies in Europe and Asia becoming notably attractive due to their political and economic reforms. The Triad, composed of Japan, the EU, and the US, has historically accounted for a substantial portion of FDI inflows to developing Asia, with Japan being the single largest investor. This indicates a strategic interest from European investors in leveraging the economic potential of the Asian markets. Moreover, various EU reports have highlighted the low level of European exports and FDI in Asia, prompting policy and program initiatives aimed at increasing European visibility and investment in the region. Institutional infrastructure and development have been identified as key determinants of FDI inflows, with European transition economies benefiting from diverse types of FDI, leading to skill transfers and favorable outcomes for the host economy. Recent trends show that a significant portion of FDI in Asia comes from other Asian economies, but there is also a substantial European and U.S. presence, indicating a diversified interest in the region's economic activities. The global pattern of FDI has shifted towards developing countries, with Asia becoming a major recipient due to its dynamic economic environment. The role of FDI in commercializing high-tech innovation in Asia further underscores the region's attractiveness, with multinational companies investing to benefit from lower production costs and higher profit margins. The liberalization scenario in Asian economies has dramatically improved the investment climate, making the region a growth pole of the global economy and attracting significant FDI inflows. Finally, US multinational enterprises (MNEs) have shown an increasing trend of investing in Asia to exploit low wage levels and secure entry into new markets, a strategy that European investors are likely following for similar reasons.

Answers from top 10 papers

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Papers (10)Insight
Journal Article•DOI
Trends in foreign direct investment flows: a theoretical and empirical analysis
D Sethi, Stephen Guisinger, Steven E. Phelan, D M Berg 
15 May 2003-Journal of International Business Studies
387 Citations
US FDI is flowing from Europe to Asia due to the significant wage differential, market opportunities, and growth in countries like China and India, impacting investment decisions.
Open access•Journal Article
Empirical Evidence on the Relationship between Foreign Direct Investment and Economic Growth: A Cross-Country Exploration in Asia
Samrat Roy, Kumarjit Mandal 
01 Dec 2012-Seoul Journal of Economics
1 Citations
FDI flows from Europe to Asia due to Asia's attractive investment climate, technological progress, and growth potential, as evidenced by the success stories of Asian economies in attracting foreign capital.
Open access•Journal Article•DOI
Integrated Model to Analyze FDI Role in Success of Commercialization of High-Tech Innovations in Asia
Sarli Rahman, Andi Oh, Yusrizal 
02 Jan 2020
1 Citations
FDI flows from Europe to Asia due to multinational companies seeking higher profits from lower production costs in Asia, increasing profit margins without significantly boosting innovation activities in Asian countries.
Open access•Journal Article
The Global Pattern of Foreign Direct Investment in Recent Years
Aliyu Aminu Baba, Yahaya Danjuma 
01 Jan 2013-Research Journal of Finance and Accounting
4 Citations
FDI is flowing from Europe to Asia due to the shift in global patterns, with developing countries like those in Asia receiving more investments, as indicated in recent years.
Open access
Recent Trends in Foreign Direct Investment in Asia: The Aftermath of the Crisis to Late 1999
Eric D. Ramstetter
01 Jan 2000
13 Citations
FDI flows from Europe to Asia due to investment opportunities in various sectors like manufacturing, trade, and finance, as highlighted in the paper on recent trends in FDI in Asia.
Journal Article•DOI
‘Europe/Asia’ Regionalism, Higher Education and the Production of World Order
Susan L. Robertson
01 Dec 2008-Policy Futures in Education
45 Citations
European Union initiatives, utilizing higher education, aim to increase European visibility and competitiveness in Asia, promoting FDI flow from Europe to Asia for economic growth and cultural presence.
Open access•Journal Article
Critical review of literature of fdi in india: preliminary observation
Deeptirani Rath, Biswajit Bhoi 
01 Aug 2018-Journal of emerging technologies and innovative research
Institutional infrastructure, diverse spillovers, skill transfers, market size, exports, and neighborhood concepts are key factors driving FDI flows from Europe to Asia, particularly in countries like India and China.
Open access
Sources of FDI flows to developing Asia: The roles of distance and time zones
Rabin Hattari, Ramkishen S. Rajan 
01 Jan 2008
24 Citations
FDI flows from Europe to Asia, particularly the Triad (Japan, EU, US), due to their significant contribution (35-40%) to developing Asia, with Japan as the largest investor.
Open access•Journal Article•DOI
Foreign Direct Investment (FDI) by Asian and European Union (EU) Countries: The Investment Effects of Pharmaceutical Sector
Asif Hussain, Xue Yang, Lu Yali, Nazir 
10 Mar 2020-International journal of economics and finance
1 Citations
European FDI flows to Asia due to Asian countries' developing stage and less economic growth, making them attractive for investment, as shown in the study on pharmaceutical sector FDI patterns.
Open access•Journal Article
Volatility of capital flows in emerging european economies: lessons from asia
Jasminka Šohinger, Davor Galinec 
28 Jun 2013-Ekonomska Misao i Praksa
FDI flows from Europe to Asia due to the dominance of short-term credit in Asia and the destabilization of European emerging economies when foreign equity flows ceased.

Related Questions

How does the FDI impact the politics?5 answersForeign Direct Investment (FDI) plays a significant role in influencing politics. Foreign firms, particularly impacted by US policies, utilize subsidiaries in the US to represent their political interests in federal elections. Political stability and corruption control are crucial factors affecting FDI inflows in developing countries, with a positive relationship between GDP growth rate, imports, inflation, and corruption index with FDI inflow. In Turkey, achieving political stability leads to increased FDI inflows, contributing to the country's financial development. The political environment of a host country, including factors like democracy, property rights protection, and governance, significantly impacts the level of inward FDI, with institutional stability and credibility positively influencing FDI inflows. Overall, FDI not only drives economic development but also intertwines with political dynamics, shaping policies and influencing decision-making processes.
How does migration impact trade and FDI?4 answersMigration has a significant impact on trade and FDI. Studies have shown that migrant networks increase capital and trade flows, with a ten percent increase in migration leading to a roughly 5.7% increase in FDI flows. The relationship between migration and trade is also significant, with similar magnitudes of effect on imports and exports. However, the effect of migration on trade balance varies depending on countries and the skill level of immigrants. Migrant stocks are positively associated with higher FDI inflows and outflows, enhancing existing FDI relationships. Overall, these findings highlight the importance of immigration policies in increasing FDI and trade flows between countries.
What are the main factors that drive the growth of fintech in Asia?5 answersThe growth of fintech in Asia is driven by several factors. Firstly, the proliferation of new technologies and startups has led to a significant transformation in the financial systems across Asia. Secondly, the increasing ubiquity of mobile phones, the internet, and other technologies has given rise to new ways of delivering financial services, commonly referred to as fintech. Thirdly, there is a growing demand for financial services in underserved parts of the economy, which fintech aims to address. Additionally, supportive regulatory environments, high costs of finance, and other macroeconomic factors have also contributed to the growth of fintech in certain economies. Finally, demographics play a role, as younger cohorts are more likely to trust and adopt fintech services.
What is the relationship between GDP growth and FDI in Europe?5 answersFDI has a significant impact on GDP growth in Europe, although the strength of this relationship varies among different groups of countries. In EU15 countries, there is weak evidence that FDI had a statistically significant impact on GDP growth. In the European Union as a whole, there is a reciprocal and positive relationship between FDI and economic growth, starting from 2008. However, this relationship is not uniform across all EU-28 countries, as some countries experience higher FDI without generating economic growth, and vice versa. Additionally, the disparities among countries in attracting FDI and GDP growth have reduced over time. Overall, FDI plays a decisive role in driving GDP growth in Europe, but the specific dynamics of this relationship differ across countries and time periods.
How do political and social factors affect FDI?3 answersPolitical and social factors have a significant impact on foreign direct investment (FDI) decisions. Political variables such as the host country's political regime, property rights protection, governance, and human rights influence the level of inward FDI. Additionally, political risk indicators, including government instability, war, corruption, and ethnic tensions, also play a role in FDI decisions. Sociopolitical and cultural risks can harm investments in specific industries, highlighting the importance of considering these factors. Furthermore, cultural differences and the political situation in a country have been found to be significant determinants of bilateral FDI stock. Finally, home-country interests, particularly in national security, can influence outbound FDI, with military aid and state-sponsored political risk insurance impacting the locational decisions of firms.
Which among these are FDIs?5 answersFrac-Driven Interactions (FDIs) are discussed in the paper by Daneshy. The paper examines the presence of inter- and intra-well interactions during fracturing operations, including frac/frac connections and fracture shadowing. It also highlights the occurrence of reverse screen-out, a phenomenon where fluid migrates from the active fracture into the passive well segment. This paper is the first to report on reverse screen-out in the fracturing literature. The paper also demonstrates how analysis of intra-well FDIs can be used as a diagnostic tool for evaluating the effectiveness of different fracture stages.

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