The determinants of bilateral FDI: Is Asia different?

Intra-Asian foreign direct investment (FDI) is dominated by flows from high technology economies to medium technology economies, while FDI elsewhere primarily consists of flows among high technology economies. This distinctive pattern is not due simply to differences in the relative distribution of Asian FDI recipients by technology, or to systematic differences in Asia's technology characteristics. A gravity model analysis is used to explore whether Asian FDI patterns differ significantly from those elsewhere, and if so, in what ways. The results show that Asian FDI flows, in contrast to other FDI flows, systematically favor hosts with relatively low technology achievement and relatively strong intellectual property rights regimes. This type of “Asian exceptionalism” is consistent with “flying geese” theories that have argued that Asian development is the result of technology flows among economies that occupy nearby rungs of the technology ladder.