RESEARCH ARTICLE
Attracting Foreign Direct Investment in ASEAN: The Impact of Institutional Quality and Macroeconomic Drivers
Muhammad Azam Khan,
Yusnidah Ibrahim,
Nor Salwati Othman,
Sardar Fawad Saleem,
Muhammad Azam Khan
Institute for Energy Policy and Research (IEPRe), Universiti Tenaga Nasional, Kajang, Selangor, Malaysia
Department of Economics, Faculty of Business & Economics, Abdul Wali Khan University Mardan, Mardan, Khyber Pakhtunkhwa, Pakistan
Search for more papers by this authorYusnidah Ibrahim
School of Business and Social Science (SBSS), Albukhary International University, Alor Setar, Kedah, Malaysia
Search for more papers by this authorNor Salwati Othman
Institute for Energy Policy and Research (IEPRe), Universiti Tenaga Nasional, Kajang, Selangor, Malaysia
College of Business Management and Accounting, UNITEN Business School, Kajang, Selangor, Malaysia
Universiti Tenaga Nasional, Kajang, Selangor, Malaysia
Search for more papers by this authorCorresponding Author
Sardar Fawad Saleem
Department of Economics, Faculty of Humanities & Social Sciences, Abbottabad University of Science & Technology, Abbottabad, Khyber Pakhtunkhwa, Pakistan
Correspondence:
Sardar Fawad Saleem ([email protected])
Search for more papers by this authorMuhammad Azam Khan,
Yusnidah Ibrahim,
Nor Salwati Othman,
Sardar Fawad Saleem,
Muhammad Azam Khan
Institute for Energy Policy and Research (IEPRe), Universiti Tenaga Nasional, Kajang, Selangor, Malaysia
Department of Economics, Faculty of Business & Economics, Abdul Wali Khan University Mardan, Mardan, Khyber Pakhtunkhwa, Pakistan
Search for more papers by this authorYusnidah Ibrahim
School of Business and Social Science (SBSS), Albukhary International University, Alor Setar, Kedah, Malaysia
Search for more papers by this authorNor Salwati Othman
Institute for Energy Policy and Research (IEPRe), Universiti Tenaga Nasional, Kajang, Selangor, Malaysia
College of Business Management and Accounting, UNITEN Business School, Kajang, Selangor, Malaysia
Universiti Tenaga Nasional, Kajang, Selangor, Malaysia
Search for more papers by this authorCorresponding Author
Sardar Fawad Saleem
Department of Economics, Faculty of Humanities & Social Sciences, Abbottabad University of Science & Technology, Abbottabad, Khyber Pakhtunkhwa, Pakistan
Correspondence:
Sardar Fawad Saleem ([email protected])
Search for more papers by this authorFirst published: 21 July 2025
Funding: The authors received no specific funding for this work.
ABSTRACT
Institutional quality (IQ) stands as a cornerstone in shaping foreign direct investment (FDI), influencing both the confidence and commitment of international investors in any nation's economy. This research empirically explores the influence of IQ variables, along with other important macroeconomic factors, on inward FDI in nine countries of the (ASEAN) using quarterly data from 2002Q1 to 2022Q4. Appropriate estimation techniques, including Robust Least Squares, Fully Modified Ordinary Least Squares (OLS), and Dynamic OLS estimators, are implemented in the current work to estimate the parameters. The study finds that IQ variables, namely corruption, rule of law, political stability, and government effectiveness, are significant in determining FDI inflows in the ASEAN economies, in addition to macroeconomic variables such as trade openness, urbanization, market size, financial sector development, tourism development, and inflation rate. The findings reveal that political stability and the rule of law positively influence FDI inflows, and corruption and government effectiveness show significant negative effects. Most variables showed significance at the 1% level. Findings suggest that policymakers should prioritize strengthening institutional governance, reducing corruption, and improving regulatory frameworks to create a more secure and attractive investment environment. Also, the stakeholders and development agencies must support institutional reforms to enhance legal certainty and administrative efficiency to boost FDI growth.
Conflicts of Interest
The authors declare no conflicts of interest.
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