Analyzing the Impact of State Fragility, Trade Openness, and Labor Force on Foreign Direct Investment in ASEAN: An Islamic Economic Perspective (2013-2022)
DOI:
https://doi.org/10.64268/jifes.v1i1.21Keywords:
Foreign Direct Investment (FDI), Labor Force, State Fragility, Trade Openness, Islamic Economic Perspective.Abstract
Background: Foreign Direct Investment (FDI) plays a significant role in the economies of developing countries, including those in the ASEAN region. Factors such as state fragility, trade openness, and labor force are believed to significantly influence FDI inflows. This research examines the relationship between these three factors and FDI inflows in 9 ASEAN countries from 2013 to 2022, with an Islamic economic perspective.
Aims: This study aims to analyze the impact of state fragility, trade openness, and labor force on FDI inflows in 9 ASEAN countries from 2013 to 2022, and to provide insights into the Islamic economic perspective on foreign direct investment.
Methods: This study employs a quantitative approach using panel data analysis. Secondary data is collected from the official World Bank website and the Fragile States Index. Data analysis is conducted using t-tests, F-tests, and R2 coefficient determination to test the relationships between the independent variables and FDI.
Results: The results of this research show that state fragility has a negative but insignificant effect on FDI. Meanwhile, trade openness and the labor force have a positive and significant effect on FDI inflows in the ASEAN region.
Conclusion: Trade openness and labor force play a key role in attracting FDI in ASEAN countries, while state fragility does not significantly affect foreign investment. From an Islamic economic perspective, FDI should not only be viewed as a way to increase individual wealth but also as a means to support inclusive economic growth and societal development.
References
Akpoili, O., & Abdi, M. (2024). Beyond Economic Numbers: Exploring the Social Impact of Foreign Direct Investments (FDI) in Southern Nigeria. https://gupea.ub.gu.se/handle/2077/82015
Bissoon, O. (2012). Can Better Institutions Attract More Foreign Direct Investment (FDI)? Evidence from Developing Countries. http://dspace.wunu.edu.ua//handle/316497/31540
Chia, S. Y. (1993). Foreign Direct Investment in ASEAN Economies. Asian Development Review, 11(01), 60–102. https://doi.org/10.1142/S011611059300003X DOI: https://doi.org/10.1142/S011611059300003X
Deaton, A. (1985). Panel data from time series of cross-sections. Journal of Econometrics, 30(1), 109–126. https://doi.org/10.1016/0304-4076(85)90134-4 DOI: https://doi.org/10.1016/0304-4076(85)90134-4
Errunza, V. (2001). Foreign Portfolio Equity Investments, Financial Liberalization, and Economic Development. Review of International Economics, 9(4), 703–726. https://doi.org/10.1111/1467-9396.00308 DOI: https://doi.org/10.1111/1467-9396.00308
Fragile States—C.S.C. Sekhar, 2010. (n.d.). Retrieved May 3, 2025, from https://journals.sagepub.com/doi/abs/10.1177/0169796x1002600301
Geda, A., & Yimer, A. (2023). What Drives Foreign Direct Investment into Africa? Insights from a New Analytical Classification of Countries as Fragile, Factor-Driven, or Investment-Driven. Journal of the Knowledge Economy, 15(3), 14199–14234. https://doi.org/10.1007/s13132-023-01639-5 DOI: https://doi.org/10.1007/s13132-023-01639-5
Gunawan, D. (2024). Sharia and Economic Equity: An Empirical Study of Income Inequality in the Organization of Islamic Cooperation. Journal International Economic Sharia, 1(2), Article 2. https://doi.org/10.69725/jies.v1i2.129 DOI: https://doi.org/10.69725/jies.v1i2.129
Gyamfi, B. A., Agozie, D. Q., & Bekun, F. V. (2022). Can technological innovation, foreign direct investment and natural resources ease some burden for the BRICS economies within current industrial era? Technology in Society, 70, 102037. https://doi.org/10.1016/j.techsoc.2022.102037 DOI: https://doi.org/10.1016/j.techsoc.2022.102037
Hodges, C. B., Stone, B. M., Johnson, P. K., Carter, J. H., Sawyers, C. K., Roby, P. R., & Lindsey, H. M. (2023). Researcher degrees of freedom in statistical software contribute to unreliable results: A comparison of nonparametric analyses conducted in SPSS, SAS, Stata, and R. Behavior Research Methods, 55(6), 2813–2837. https://doi.org/10.3758/s13428-022-01932-2 DOI: https://doi.org/10.3758/s13428-022-01932-2
Hussain, M., Bashir, M. F., & Shahzad, U. (2021). Do foreign direct investments help to bolster economic growth? New insights from Asian and Middle East economies. World Journal of Entrepreneurship, Management and Sustainable Development, 17(1), 62–84. https://doi.org/10.1108/WJEMSD-10-2019-0085 DOI: https://doi.org/10.1108/WJEMSD-10-2019-0085
Jakovljevic, M., Wu ,Wenqing, Merrick ,Joav, Cerda ,Arcadio, Varjacic ,Mirjana, & and Sugahara, T. (2021). Asian innovation in pharmaceutical and medical device industry – beyond tomorrow. Journal of Medical Economics, 24(sup1), 42–50. https://doi.org/10.1080/13696998.2021.2013675 DOI: https://doi.org/10.1080/13696998.2021.2013675
Khaskheli, M. B., & Zhao, Y. (2025). The Sustainability of Economic and Business Practices Through Legal Cooperation in the Era of the Hainan Free Trade Port and Southeast Asian Nations. Sustainability, 17(5), Article 5. https://doi.org/10.3390/su17052050 DOI: https://doi.org/10.3390/su17052050
Küçük, Ö. N., & and Altunışık, M. (2025). Foreign direct investment and authoritarian resilience: Saudi and Emirati investment in Egypt and the role of foreign policy motivations. British Journal of Middle Eastern Studies, 0(0), 1–21. https://doi.org/10.1080/13530194.2025.2492004 DOI: https://doi.org/10.1080/13530194.2025.2492004
Kumari, R., Shabbir, M. S., Saleem, S., Khan, G. Y., Abbasi, B. A., & Lopez, L. B. (2021). An empirical analysis among foreign direct investment, trade openness and economic growth: Evidence from the Indian economy. South Asian Journal of Business Studies, 12(1), 127–149. https://doi.org/10.1108/SAJBS-06-2020-0199 DOI: https://doi.org/10.1108/SAJBS-06-2020-0199
Lall, S. (2001). Competitiveness Indices and Developing Countries: An Economic Evaluation of the Global Competitiveness Report. World Development, 29(9), 1501–1525. https://doi.org/10.1016/S0305-750X(01)00051-1 DOI: https://doi.org/10.1016/S0305-750X(01)00051-1
Moibioi, A. E. D. (2024). The Role of Foreign Direct Investment on Economic Growth: Evidence from Comoros [Thesis]. http://dspace.khazar.org/handle/20.500.12323/7772
Musse, O. S. H., & Echchabi, A. (2024). Determinants of foreign direct investment inflows in the East African community states: The roles of political stability, economic growth and trade openness. The Australasian Review of African Studies, 45(2), 89–110. https://doi.org/10.3316/informit.T2025032700012200798651263
Plümper, T., Troeger, V. E., & Manow, P. (2005). Panel data analysis in comparative politics: Linking method to theory. European Journal of Political Research, 44(2), 327–354. https://doi.org/10.1111/j.1475-6765.2005.00230.x DOI: https://doi.org/10.1111/j.1475-6765.2005.00230.x
Qaiser, H., Rehman, H. U., & Arshed, N. (2023). Role of institutional quality on women’s empowerment—A case of highly gender unequal Asian countries. Poverty & Public Policy, 15(1), 48–75. https://doi.org/10.1002/pop4.363 DOI: https://doi.org/10.1002/pop4.363
Radmehr, R., Ali, E. B., Shayanmehr, S., Saghaian, S., Darbandi, E., Agbozo, E., & Sarkodie, S. A. (2022). Assessing the Global Drivers of Sustained Economic Development: The Role of Trade Openness, Financial Development, and FDI. Sustainability, 14(21), Article 21. https://doi.org/10.3390/su142114023 DOI: https://doi.org/10.3390/su142114023
Riedel, M. (2000). Research Strategies for Secondary Data. SAGE.
Sarafidis, V., & Wansbeek, T. (2012). Cross-Sectional Dependence in Panel Data Analysis. Econometric Reviews, 31(5), 483–531. https://doi.org/10.1080/07474938.2011.611458 DOI: https://doi.org/10.1080/07474938.2011.611458
Sethi, N., Das, A., Sahoo, M., Mohanty, S., & Bhujabal, P. (2020). Foreign direct investment, financial development and economic prosperity in major south Asian economies. South Asian Journal of Business Studies, 11(1), 82–103. https://doi.org/10.1108/SAJBS-12-2019-0225 DOI: https://doi.org/10.1108/SAJBS-12-2019-0225
Seti, T. M., Mazwane, S., & Christian, M. (2025). Financial Openness, Trade Openness, and Economic Growth Nexus: A Dynamic Panel Analysis for Emerging and Developing Economies. Journal of Risk and Financial Management, 18(2), Article 2. https://doi.org/10.3390/jrfm18020078 DOI: https://doi.org/10.3390/jrfm18020078
Seyoum, B. (2024). Industrialization and the Role of Foreign Direct Investment. In B. Seyoum, State Fragility, Business, and Economic Performance (pp. 179–224). Springer International Publishing. https://doi.org/10.1007/978-3-031-44776-1_5 DOI: https://doi.org/10.1007/978-3-031-44776-1_5
Shadlen, K. C. (2005). Exchanging development for market access? Deep integration and industrial policy under multilateral and regional-bilateral trade agreements. Review of International Political Economy, 12(5), 750–775. https://doi.org/10.1080/09692290500339685 DOI: https://doi.org/10.1080/09692290500339685
Sharmiladevi, J. C. (2023). Impact study of agricultural value added on foreign direct investment, economic development, trade openness for India following ARDL approach. Cogent Economics & Finance, 11(2). https://doi.org/10.1080/23322039.2023.2270595 DOI: https://doi.org/10.1080/23322039.2023.2270595
Sutherland, D., Anderson, J., Bailey, N., & Alon, I. (2020). Policy, institutional fragility, and Chinese outward foreign direct investment: An empirical examination of the Belt and Road Initiative. Journal of International Business Policy, 3(3), 249–272. https://doi.org/10.1057/s42214-020-00056-8 DOI: https://doi.org/10.1057/s42214-020-00056-8
Wardani, D. T. K. (2024). The Effect of Trade Openness and Political Fragility on Foreign Direct Investment. Jurnal Ilmu Ekonomi JIE, 8(04), Article 04. https://doi.org/10.22219/jie.v8i04.37028 DOI: https://doi.org/10.22219/jie.v8i04.37028
Zehri, C. (2025). Renewable energy and industrial innovation: Catalysts for economic and trade growth. Russian Journal of Economics, 11(1), Article 1. https://doi.org/10.32609/j.ruje.11.142815 DOI: https://doi.org/10.32609/j.ruje.11.142815
Zhang, C., Waris, U., Qian, L., Irfan, M., & Rehman, M. A. (2024). Unleashing the dynamic linkages among natural resources, economic complexity, and sustainable economic growth: Evidence from G‐20 countries. Sustainable Development, 32(4), 3736–3752. https://doi.org/10.1002/sd.2845 DOI: https://doi.org/10.1002/sd.2845
Zhang, T., & Liu, Z. (2024). Navigating Integration Through Rising Complexity: Convergence Dynamics in the ASEAN Banking Markets. Open Economies Review, 35(4), 801–826. https://doi.org/10.1007/s11079-024-09771-8 DOI: https://doi.org/10.1007/s11079-024-09771-8