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80 Nick J. Freeman© 2001 Institute of Southeast Asian Studies, Singapore 80 4 ASEAN Enlargement and Foreign Direct Investment NICK J. FREEMAN Introduction In late July 1997, Laos and Myanmar were permitted to upgrade their status within the Association of Southeast Asian Nations (ASEAN), from that of being observers — a position held by Laos since 1993, and Myanmar since 1996 — to full members. An earlier decision to also admit Cambodia as a full member of the regional grouping was postponed at the eleventh hour, following the outbreak of civil conflict in the country’s capital in early July. As a consequence of Laos’ and Myanmar’s entry, the ASEAN market adopted a further 52 million people and expanded by about 913,000 sq km. Cambodia gained full membership in April 1999, resulting in the ASEAN market growing by an additional 10.5 million people and 181,000 sq km. This most recent enlargement process is in addition to the 75 million people and roughly 330,000 sq km. that entered the regional grouping in 1995, when Vietnam joined ASEAN. The inclusion of Cambodia fulfilled ASEAN’s long-held aspiration that the regional grouping should ultimately span the entire ten countries of the Southeast Asian region. With the ASEAN enlargement process fully completed, the regional grouping has grown by a cumulative “Greater Mekong” market of 138 million new citizens (albeit of low average per capita gross national product), representing an increase in ASEAN’s total citizenry of almost 40 per cent.1 Quite clearly, this is a substantial enlargement in a relatively short space of time, and may well have marked implications for various fields of ISEAS DOCUMENT DELIVERY SERVICE. No reproduction without permission of the publisher: Institute of Southeast Asian Studies, 30 Heng Mui Keng Terrace, SINGAPORE 119614. FAX: (65)7756259; TEL: (65) 8702447; E-MAIL: publish@iseas.edu.sg ASEAN Enlargement and Foreign Direct Investment 81© 2001 Institute of Southeast Asian Studies, Singapore economic and business endeavour in the Southeast Asian region, including foreign direct investment (FDI) activity. The growth of FDI flows and venture capital activity across the globe in recent years has been quite remarkable.2 Between 1980 and 1995, the cumulative stock of FDI in the world blossomed from about US$514 billion to US$2,658 billion, a more than fivefold increase in just fifteen years. Pacific Asia’s share of this rapidly expanding global FDI “pie” has also grown more than twofold, from 6.7 per cent to 13.6 per cent over the same time period. However, ASEAN has seen its own share of Asia-Pacific FDI drop from 71 per cent in 1980 to 47 per cent in 1995, largely as a result of greater flows heading for mainland China, following the latter’s opening up to foreign venture capital in 1979. Nonetheless, ASEAN’s total stock of FDI grew more than sixfold over the same fifteen-year period (1980–95), and by just over 75 per cent in the first five years of the 1990s. Furthermore, in recent years we have witnessed burgeoning FDI outflows from Malaysia, Singapore — and to a lesser extent Thailand, Indonesia, and the Philippines — to neighbouring countries within Southeast Asia (that is, intra-ASEAN FDI flows), and beyond. For example, Vietnam has been a notable recent recipient of substantial FDI inflows from Singapore, so that the island city-state now ranks as the largest single foreign investment source (as measured by capital inflow pledges), ahead of such regional rivals as Hong Kong, Taiwan, Japan, South Korea, as well as the United States and the Eurpean Union (EU) member states. The development of such intra-ASEAN FDI flows has been cited as an indication of the growing economic maturity of the Southeast Asian region — no longer solely the passive recipient of investment flows from the industrialized countries, but an economic and business force in its own right. However, ASEAN should not be complacent for the emerging markets of Eastern Europe and the former Soviet Union, Latin America, and even Sub-Saharan Africa are posing increasingly convincing challenges as worthy host regions for new overseas venture capital flows. Furthermore, the most recent figures indicate that whilst FDI flows to Asia continue to increase — by 25 per cent between 1995 and 1996 — the rate at which global flows of FDI increased between 1995 and 1996 declined to 10 per cent (compared with an average of 17 per cent over the last five years). Moreover, FDI flows to Asia are increasingly...

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