Wage rate, regional trade bloc and Location of Foreign Direct Investment Decisions

The objective of this paper is to examine the impact of wage rate on FDIlocation in South East Asia in the presence of trading systems (regional andmultilateral trading systems) drawing example from panel data of fiveASEAN countries (Malaysia, the Philippines, Indonesia, Singapore andThailand). The analysis is built on the extended endogenous growth modeldue to work of Borensztein et al. (1998) and utilizes the fixed effectsestimation technique to estimate the parameters of the model. Three measureswere constructed for each trading system and used as regressors. The resultsshow that the decisions to locate FDI in ASEAN countries are motivated bylow wage rate or labour costs in the presence of both regional and multilateraltrading systems. This implies that as the MNEs (Multinational Enterprises)aim at cost minimisation whether the host country is following multilateral orregional trading system makes no difference. Too for the host country toremain competitive in the global market and attract more MNEs, it has tocompromise its labour standard. Or alternatively seek high-tech FDI thatrequires high skilled labour force.