An Analysis of Determinants of Foreign Direct Investment in Banking Industry from Taiwan to ASEAN Countries with Gravity Model

Abstract

This paper examined the choice of FDI location of Taiwanese banks’ FDI with a particular on a sample of the Association of Southeast Asian Nations (ASEAN) member states. The pattern and the determinants of Taiwanese banks’ FDI in ASEAN are investigated with gravity model framework and examined by panel data analysis from 2000 to 2019. It was found that Taiwanese banks generally preferred to directly invest in countries that had large market size, high economic freedom, closer geographical proximity, larger value of bilateral trade, and large amount of Taiwanese outward direct investment. Unlike previous studies, the results confirm that interest rate spread had relatively insignificant effects on the location choice of Taiwanese banks in ASEAN. Additionally, control of corruption in host countries seemed to have significantly negative effect on location choice of Taiwanese banks. The insights presented in this paper could offer useful suggestions for both governments and investors.