HUMAN RESOURCE COMPETITIVENESS AND INFLOW OF FOREIGN DIRECT INVESTMENT TO THE ASEAN REGION

Abstract

Theoretically, foreign investors are likely to invest in countries where competitiveness indicators such as human resource capability, resource endowment, market opportunities and per capita incomes are high. This paper attempts to compare human resource competitiveness indicators such as labour costs and productivity, educational achievements, number of skilled workers, skill composition and technological progress in four selected ASEAN countries Malaysia, Thailand, Indonesia and the Philippines with developed countries in the region, such as Singapore, and to compare them to trends in FDI inflows. The analysis is based on data for the period 1985 to 2000. The role and benefits of foreign direct investment (FDI) in developing economies have long been debated. The proponents of FDI have argued that FDI would bring prosperity in the recipient countries through technology transfer, higher exports, enhanced job opportunities and improved government revenues with these factors in combination generating strong externalities for the rest of the domestic economy and putting it on a higher growth path. On the other hand, opponents have argued that FDI would increase dependency and, hence, vulnerability of the recipient countries on the FDI-exporting developed countries on account of the footloose nature of FDI. The debate on the relative merits of FDI has not yielded a clear-cut consensus as for many developing countries FDI remains an academic curiosity with little in the way of benefits as most FDI has flown to a small number of countries. Nonetheless, for many developing countries such as those in ASEAN, notwithstanding the high saving rates, the high investment rates that have driven a rapid pace of output growth have necessitated major policy steps to attract FDI in certain critical areas. FDI in these countries has not only added to the stock of domestic capital to finance investment in new development projects but simultaneously provided access to new technology and managerial and marketing know-how.