Structural Drivers Versus Short-Run Fluctuations:A Time-Varying Analysis of FDI DeterminantsIn Selected Asian Economies

This study examines the determinants of foreign direct investment (FDI) in selected Asian economies (1970–2022) by comparing the influence of structural drivers with that of short-term fluctuations. Employing a comprehensive empirical framework—Fully Modified OLS ‎‎(FMOLS), Dynamic OLS (DOLS), and Vector Error Correction Model (VECM)—we distinguish long-run equilibrium relationships from ‎transient dynamics. The long-run estimates identify key structural drivers: economic growth exerts a strong positive effect, affirming the ‎market-size hypothesis, whereas inflation and trade openness exhibit significant negative effects, pointing to the deterrents of macroeconomic instability and intense competitive pressures from liberalization, respectively. Conversely, short-run analysis reveals limited transient effects. The VECM indicates no short-run convergence to equilibrium, and Granger causality tests show that only trade openness has a significant short-run causal impact on FDI. This dichotomy is further elucidated by time-varying impulse response functions, which confirm that ‎FDI reactions to macroeconomic shocks are asymmetric and period-specific. Notably, trade innovations generate the most substantial short-term gains, despite their negative long-term effects. Overall, the findings robustly demonstrate that FDI in the region is fundamentally anchored by long-term structural conditions—namely, stable prices, managed trade integration, and sustained economic expansion—while ‎being only marginally influenced by short-run fluctuations.