Yu. A. VASINA

Graduate student

Far Eastern Federal University (Vladivostok)

Keywords: regional economic integration, regional trade agreements, free trade area, foreign direct investment, ASEAN

In the modern world, regional economic integration (REI), including regional trade agreements (RTAs), is becoming very popular as the most common form of such integration. According to the WTO, to date, almost all its members have indicated their participation in one or more regional trade agreements. At the same time, the number of the latter is steadily increasing every year.

In 2014, the WTO registered about 370 fully functioning RTAs (see Figure 1). REI gives its member countries certain advantages, otherwise they would not have concluded any regional agreements at all. The practice of regional integration associations operating in the world shows that integration has a direct impact on various aspects of the economic development of both individual united states and the entire regional integration association as a whole. In the domestic and foreign literature, studies concerning the economic development of countries united in integration groupings are quite widely presented. However, it was only after the formation of the European Economic Community (EEC) in the 1960s that foreign scientists began to consider the influence of REI on the inflow of foreign direct investment (FDI) as one of the components of economic development. This approach was probably prompted by a sharp increase in the inflow of PII to the EEU countries.

To date, a certain theoretical basis has already been accumulated abroad, justifying the link between REI and FDI. As a result of the conducted empirical studies, evidence of this connection was presented on the example of the functioning of integration groups in Europe, North and Latin America, Africa and Asia.

ASEAN AS A RECIPIENT OF FDI

About 40 years ago, the ASEAN countries were afraid to open their market to foreign investors. They were expected to have a negative impact on the local economy. At that time, all ASEAN members, with the exception of Singapore, adopted instruments restricting FDI inflows. However, the attitude to investment changed in the late 70s of the XX century after the emergence of new industrial countries (NIS).

Earlier ASEAN investment documents have been updated and supplemented with investment incentives to help attract FDI. This has led to a significant increase in the flow of foreign direct investment to ASEAN from Japan and NIS (Republic of Korea, Taiwan, Hong Kong), which have shown interest in moving their labor-intensive enterprises abroad. According to statistics, net FDI inflows to ASEAN in 1972 were only $539 million, and in 1982 they reached $3.43 billion. (536% growth)¹.

In 1992, the ASEAN member States signed the first Co-operation Agreement.-

Figure 1. Number of regional trade agreements in force in 1950-2014

Источник: Regional trade agreements: facts and figures. Evolution of Regional Trade Agreements in the world // World Trade Organization. 2014 - http://www.wto.org/ english/tratop_e/region_e/regfac_e.htm#top

Figure 2. FDI inflows to ASEAN in 1995-2012, $ million

Источник: FDI trends and developments in 2012 // ASEAN Investment Report 2012: The Changing FDI Landscape. ASEAN Secretariat. July 2013 -http://www10.iadb.org/intal/intalcdi/PE/2013/12820.pdf

Notes: 1997 - record value of FDI inflows; 1998-2002 - period of impact of the 1997 - 1998 financial crisis on FDI inflows; 2003-2006-recovery and sustained growth of FDI after the 1997-1998 financial crisis; 2007-record value before the 2008 global economic crisis; 2008-2009 2008-the period of impact of the 2008 economic crisis; 2011-2012 - a new record value.

agreement on the creation of a free trade zone (3 articles). This resulted in a sharp jump in FDI inflows in 1993. This trend continued until the region was affected by the 1997-1998 financial crisis, when FDI inflows declined by 23% due to a sharp decline in investment from the main sources: Japan, the Republic of Korea, and the ASEAN countries themselves.

The current picture of foreign direct investment in ASEAN is radically different from previous periods (see chart 2).

FDI inflows in recent years have reached the highest level in the entire history of this integration grouping. After the global economic crisis of 2008, ASEAN has grown significantly stronger and has become one of the world's centers of attraction for investment. In our opinion, one of the main reasons for such an unprecedented growth of FDI in the ASEAN economy was the strengthening of its intra-regional ties in various economic spheres (including in the investment sphere), which ensured the creation of more favorable conditions for foreign investors in the region.

FACTORS INFLUENCING REI ON FDI IN ASEAN

Summarizing the materials of works of foreign authors in the field of research on the impact of REI on FDI allows us to identify some factors of such influence. Let us consider the mechanism of their action in relation to the integration and investment processes in ASEAN.

Factor N 1. Experts from UNCTAD, as well as a number of foreign researchers* believe that the inflow of FDI depends on the political stability in the territory of capital investment and the size of the market, the growth and expansion of which is ensured by regional integration. As a rule, the formation of REI improves the investment climate of its member countries. In particular, for investors, through the adoption of various regional integration and investment agreements, integration contributes to greater economic and political stability. In addition, due to the unification of the economies of states within the framework of a single integration grouping, the market size automatically increases, and accordingly, investors ' access to various factors of production expands. As a result, there is an increase in FDI inflows to region ². Economic integration and the introduction of new regional measures in recent years have strengthened the investment climate of ASEAN, making it more attractive to investors.³ These measures include: liberalizing investment regimes, opening up more industries to direct investment, streamlining and simplifying investment procedures, signing double taxation agreements, reducing corporate taxes, creating free economic zones, strengthening institutional investment capacity, taking measures to reduce the cost of doing business, etc.

ASEAN member countries provide investors with more opportunities from an expanded market (economies of scale), including opportunities to exploit a variety of local resources. The region has large reserves of gas (Brunei, Myanmar, Thailand) and oil (Brunei, Indonesia, Malaysia, Myanmar). Land resources and developed agriculture are Indonesia, Malaysia, Myanmar, Laos, Thailand, and the Philippines. Cambodia, Indonesia, and Vietnam are countries with cheap labor. Singapore has an impressive research base and a highly skilled workforce, as well as rich marine resources.

Factor N 2. British researchers * * believe that FDI inflows depend on the degree of integration of countries. The higher the rr-

* The impact of integration on FDI inflows (factor N 1) has attracted the attention of researchers from the United Kingdom (O. Morissey), Switzerland (P. Sauvy), Belgium (F. Morissey). Di Mauro), the United States (Dmitry Medvedev), Australia (John Kerry).Gali and F. Di), Japan (N. Salik) (approx. author's note).

** D. V. Te Velde and D. Bezemer, who showed interest in studying the impact of integration on FDI inflows and identified factor No. 2 in 2006 (author's note).

Figure 3. ASEAN: Major investors in 2012, $ billion

Источник: FDI trends and developments in 2012 // ASEAN Investment Report 2012: The Changing FDI Landscape, ASEAN Secretariat. July 2013 -http://www10.iadb.org/intaI/intalcdi/PE/2013/12820.pdf

the higher the level of integration, the greater the inflow of FDI ⁴.

Over the past decade, ASEAN has advanced in terms of strengthening integration ties.⁵ During this period, the following institutions have been established and are functioning, ensuring a high degree of its integration::

- The ASEAN Free Trade Area, whose legal basis is the 2009 Trade Agreement.;

- The ASEAN Investment Zone. It operates on the basis of the 2009 ASEAN Comprehensive Investment Agreement, which regulates relations in the field of liberalization, promotion and protection of investments and sets out the goal of forming a single investment space;

- ASEAN Industrial Cooperation, which has been in force since 1996 in accordance with the ASEAN Industrial Cooperation Agreement, which was qualitatively updated in 2011. The agreement provides the right for firms from two or more countries in the region to engage in joint production and industrial activities. It encourages companies to enhance interaction in the commodity markets, involves the joint use of resources, and the creation of associations of industrial enterprises;

The ASEAN Investment Forum, held since 2011 at the level of heads of investment agencies in each country. The Forum is a platform for the exchange of experience, contributes to the expansion of cooperation between investment agencies of the ASEAN member countries, and joint solution of current investment issues.

In addition, in recent years, the ASEAN Secretariat has stepped up its organizational activities aimed at encouraging investment. Among the most important measures should be mentioned: the creation of websites and databases, the publication of various publications and statistical information on investment projects and investment activities in general.

With the help of the above-mentioned institutions, the foundation for achieving the ultimate goal of education by 2015 has been created. The ASEAN Economic Community, which presupposes a single market and production base that promotes the free flow of goods, services, capital and skilled labor.

Each of the above institutions provides enhanced intra-regional integration and encourages FDI inflows to ASEAN. In particular, during the period of their operation (from 2009 to 2012), there was a sharp increase in FDI inflows to ASEAN-2.5 times (see figure 2).

Factor N 3. According to the theories of American researchers*, the impact of REI on FDI depends on whether the exporting country and the receiving country are members of REI. So, in their opinion, the inflow of FDI to Canada and Mexico from the United States under NAFTA has a completely different result than the inflow of FDI to the same countries from France. At the same time, the result of US FDI exports to NAFTA member countries differs from the result of the same exports from the United States to other integration groupings.⁶

According to the ASEAN Investment Report, a significant part of FDI inflows is provided by the Association's member countries themselves. They account for 22.8% of total FDI inflows to ASEAN. The shares of each of the largest non-regional investors (the EU, Japan, China, the United States, Hong Kong, the Cayman Islands, the Republic of Korea, the United Arab Emirates, and Taiwan) are significantly less than the combined share of ASEAN member countries (see figure 3).

As for the outflow of FDI from ASEAN, about 42% of the total outflow of FDI from the integration group is accounted for by the same REI member countries. According to forecasts of the ASEAN and East Asia Institute for Economic Research, this figure will soon pass the 50% mark7.

The above data show that, within the framework of integration, the ASEAN member countries have great advantages for investment activities, in contrast to non-regional States.

Factor N 4. Swedish researchers** draw attention to the fact that FDI inflows to REIS in developed countries (a type of North-North integration) It may differ from FDI inflows to the REIS of developing countries (South-South integration type) or to the REIS of countries with different levels of development (North-South integration type). This depends on how competitive the REI member countries will be, and to what extent their economies will be able to complement each other.⁸ In particular, the complementarity of economies contributes to the strengthening of

* L. Yati, E. Stein, and S. Dod, who determined factor No. 3 based on the study of investment processes in the North American Integration Grouping (NAFTA) (note 3). author's note).

** M. Blomstrom and A. Kokko in 1997 conducted a study of the impact of integration on FDI inflows and identified factor N 4 (author's note).

trade and investment activity. At the same time, the traditional view is that the member countries of integration in the "North-North" model have a greater degree of complementarity of economies than in the "South-South" or "North-South"models.⁹

Although ASEAN is a South-South integration of developing countries, there is currently a certain degree of complementarity between the economies. At the same time, regional complementarity encourages investment activity. For example, some countries of the integration group with a shortage of labor invest in others, where this resource is abundant. An important issue for the investor is also the size of the salary of employees in the country of investment. In general, only the young ASEAN member States have an advantage in terms of remuneration. Therefore, in recent years, Cambodia and Vietnam have attracted FDI from Malaysian, Singaporean and Thai textile and clothing companies, which require their cheap labor. Similarly, some land-scarce member countries encourage their agricultural firms to invest in other land-rich ASEAN countries. Examples include plantation companies in Malaysia and Singapore.

Thus, being generally classified as a South-South integration type, ASEAN within this type has its own uniqueness, since it contains features characteristic of the North-North integration type. This uniqueness ensures an increase in FDI inflows to the integration group under consideration.

Factor N 5. Some authors * believe that the impact of REI on FDI depends on the type of FDI and the investment motive, i.e., whether FDI is horizontal or vertical ¹⁰.

Horizontal FDI occurs when the parent company moves its production from its home country abroad to avoid high trade barriers and other costs associated with the transportation of finished goods. In order to achieve these goals, a TNC can set up its subsidiaries in one or several countries, and all firms produce, as a rule, similar goods (the same ones that were produced in the home country).

Vertical FDI occurs when a company abroad purchases a supplier or distributor to further promote its finished products or places a certain stage of production because of the cheapness of factors of production. For example, a Japanese car manufacturer sets up a tire manufacturing facility in the United States or buys a car dealership there to sell its cars.

The authors mentioned above drew attention to the following pattern. If a country differs from others in its availability of factors of production and low trade barriers to entering its market, then vertical FDI will prevail in this country. However, when the cost of factors of production in a country is low and trade barriers are high, the amount of horizontal FDI increases.

The division of FDI into horizontal and vertical has become the basis of two approaches to determining the impact of REI on FDI.

The first approach explains the impact of REI on intraregional FDI inflows. First, for horizontal FDI, such inflows are likely to decline. Thus, as a result of creating a commodity producer company based in one of the FTA member countries as part of the FTA integration, it will be easier and cheaper to export your goods to other FTA member countries than to create a similar production facility in them. Here, trade acts as a substitute for investment.

Secondly, for a firm based in one of the FTA member countries and investing in the form of vertical FDI, reducing trade barriers under the FTA will help increase its investment in other FTA member countries, since they may have factors of production cheaper than in the home country. In the latter case, the company can create a very profitable production chain, and the final product is easy to export. Here, trade and FDI are complementary categories.

The second approach considers the impact of REI on non-regional (external) FDI inflows. Its essence is that the reduction of tariff barriers within the REI framework will facilitate the inflow of both horizontal and vertical FDI from the outside world.

As mentioned above, intraregional FDI inflows to ASEAN account for a significant proportion of total FDI inflows to this integration grouping. According to the ASEAN Investment Report, member countries of the Association are pushing their companies to enter the regional market in order to fully benefit from integration. In addition, since the goal of creating the ASEAN Economic Community by 2015 was announced in 2007, firms themselves have become more interested in developing the region more quickly and taking advantage of integration.

For example, Thai banks and real estate firms are now starting to establish branches in other ASEAN member countries. ASEAN-based companies that have already expanded their production networks in the region also include: CIMB, Maybank, Axiata, Air Asia, Sime Darby, IHH, Siam Cement, PTT, Thai Beverage, S&P, Central, Ayala, San Miguel, Lippo, Ciputra, DBS, Far East Hospitality Group, Keppel Group, CDL, BreadTalk, Petrovietnam ¹¹. As we can see, there is an increase in the volume of vertical intraregio projects in ASEAN.-

* Many foreign authors pay attention to the presence of factor N 5 (in the USA - J. R. R. Tolkien).Markusen and A. Venables, E. Graham, M. Marchant, and others; in Europe, P. Brenton, F. Di Mauro, M. Leweck, and others; and University of Hong Kong scientists N. Aminian, K. Fang, and H. Iizaka) (author's note).

This was supported by measures taken in recent years (2009 - 2011) in ASEAN to strengthen economic integration.

With regard to non-regional (external) FDI inflows, ASEAN's implementation of measures to strengthen regional integration has had a significant impact on both horizontal and vertical FDI inflows. For example, external TNCs such as Ajinomoto, AMD, British Telecom, Daihatsu, GE, Intel, Lenzing, Novartis, Procter and Gamble, Sony, Suzuki, and Wilmar have recently opened branches for the production of similar products in ASEAN member countries (horizontal FDI). Vertical FDI is also well represented in the region under review.

So, the American company Google, operating in Singapore, has opened a new representative office in Malaysia and plans to open another in Thailand ¹². Nissan is expanding its activities in ASEAN in the field of research and development ¹³. Aeon Thana Sinsap, which already has branches in Malaysia and Thailand, plans to start working in other countries ASEAN ¹⁴.

Some TNCs (BASF, Nestle, Samsung, Toyota) that are already present in the region are building new plants there. Luxury goods companies (Hermes International, Gucci, Gaieties Lafayette and Louis Vuitton) that have stores in ASEAN member countries are planning to open even more stores across ^the region15.

As we can see, the opportunities associated with the economic integration of ASEAN for most external TNCs are the main driving force of their investment activities within this integration grouping. The potential of ASEAN as a single large regional market is increasingly attracting both horizontal and vertical FDI from external investors.

* * *

Thus, ASEAN is one of the major regional economic integration associations of the modern world economy, which has been demonstrating a steady increase in FDI inflows since its formation as an economic bloc (since the early 1990s), with a sharp increase in this indicator in recent years. There is no doubt that the positive dynamics of FDI inflows to ASEAN are largely due to the strengthening of the integration process within the association throughout this period. It has helped to increase investor confidence in the member countries of the integration group, as well as created a number of investment opportunities.

The application of factors of REI influence on FDI inflows based on the approaches of foreign scientists and formulated in a generalized form in this article to the study of investment processes in a particular regional integration association (ASEAN) made it possible to prove their effectiveness. These factors take into account the current realities of the complicated structure of international economic relations as a result of the growing process of regional integration. With this in mind, they can be considered as a contribution to the development of the theory of international capital migration in terms of clarifying the causes or driving forces of such migration. Together, these factors can be applied in further research to develop specific methodologies for assessing the impact of regional economic integration on FDI inflows.

^{Normal W.I., Peter S., Maurice K.} 1 The Effect of ASEAN Economic Integration on Foreign Direct Investment // Journal of Economic-Integration. September 2009, 24 (3). P. 385 - 407.

² The Role of International Investment Agreements in Attracting Foreign Direct Investment to Developing Countries. UNCTAD. New York; Geneva: United Nations. 2009; Morrissey O. Investment Provisions in Regional Integration Agreements for Developing Countries // CREDIT Research Paper. 2008. N 08/06; Sauve P. Investment Regulation through Trade Agreements: Lessons from Asia // Asia-Pacific Research and Training Network on Trade. Working Paper Series. December 2007. N 49; Di Mauro F. The Impact of Economic Integration on FDI and Exports: A Gravity Approach // CEPS Working Document. Brussels: CEPS. 2000. N 156; Medvedev D. Beyond Trade: The Impact of Preferential Trade Agreements on Foreign Direct Investment Inflows // World Bank Policy Research Working Paper. Washington, DC: The World Bank. 2006. N 4065.

³ ASEAN Economic Community Blueprint. Free Flow of Investment // Roadmap for an ASEAN Community 2009 - 2015, ASEAN Secretariat. April 2009 - http://www.aseansec.org/wp-content/uploads/2013/07/ RoadmapASEANCommunity.pdf

^{Te Velde D.W., Bezemer D.} 4 Regional Integration and Foreign Direct Investment in Developing Countries // Transnational Corporations. 2006. Vol 15. N 2, p. 41 - 70.

⁵ Introduction: ASEAN is on track for economic integration // Investing in ASEAN 2013/2014, ASEAN Secretariat. October 2013 -http://www.asean.org/resources/publications/asean-publications/item/ investing-in-asean-2013 - 2014?category_id=382

^{Yeyati L., Stein E., Daude С.} 6 Regional Integration and the Location of FDI // Working Paper. Washington, DC: Inter-American Development Bank. 2003. N 492.

^{Prakash A., Isono I.} 7 ASEAN in the Global Economy - An Enhanced Economic and Political Role // ERIA Policy Brief. 2012. N 2012 - 01, p. 1 - 12.

^{Kokko A.} Blomstrom M., 8 Regional Integration and Foreign Direct Investment // Working Paper Series in Economics and Finance. 1997. N 172.

^{Lyubetsky V. V.} 9 Mirovaya ekonomika: uchebno-metodicheskiy kompleks [World Economy: educational and methodical complex]. Online edition 13.07.2010 - http://www.e-college.ru/ xbooks/xbook006/book/index/index.html?go-part-006*page.htm

^{Markusen J., Venables A.} 10 Multinational Firms and the New Trade Theory // Journal of International Economics. 1998. Vol. 46, p. 183 - 204; Graham E.M. On the Relationship among Foreign Direct Investment and International Trade in the Manufacturing Sector: Empirical Results for the United States and Japan // WTO Staff Working Paper. 1996. RD-96 - 008; Brenton P., Di Mauro F., Luecke. M. Economic Integration and FDI: An Empirical Analysis of Foreign Direct Investment in the EU and in Central and Eastern Europe // Kiel Working Paper. 1998. N 890, p. 520 - 544; Aminian N., Fung K.C., Iizaka H. Foreign Direct Investment, Intraregional Trade and Production Sharing in East Asia // RIETI Discussion Paper Series. 2007. 07-E-064.

¹¹ FDI trends and developments in 2012 // ASEAN Investment Report 2012: The Changing FDI Landscape. ASEAN Secretariat. July 2013 - http://www10.iadb.org/intal/intalcdi/PE/2013/12820.pdf

¹² Ibidem.

¹³ Nissan announces expansion plan for R&D, technical center in ASEAN - http://www.nissan-global.com/EN/NEWS/2013/_STORY/ 130206 - 01-e.html

¹⁴ Aeon eyes major ASEAN expansion - http://www.bang-kokpost.com/business/economics/323617/aeon-eyes-major-asean-expansion

¹⁵ Indonesia lures more luxury brands - http://www.cpp-luxury.com/indonesia-lures-more-luxury-brands/

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