Is Capital being Pushed or Pulled into Southeast Asia?

The paper aims to examine if push or pull factors are driving capital inflows into Southeast Asia. Using factor analysis, we find that there is one common factor that is driving capital flows into the region. This common factor, which can be interpreted as a push factor, accounts for 35 per cent of the variance of capital inflows into the region. Regression analysis shows that the push factor is strongly influenced by investors' risk perception and, to a lesser extent, by business cycle in the United States. This is worrying as risk perception can change quickly during periods of crisis and the capital inflows could suddenly turn into outflows, as seen during the recent global financial crisis.