ANIES. Accordingly, the relative share of investment in the traditional industry, textiles
and clothing, declined from 7.0% in 1980 to 3.9% in 1989; whereas the share of
chemicals, pharmaceuticals and industrial electronics altogether increased from 22.6%
in 1980 to 28.2% in 1989.
The upsurge of intra-regional flow of FDI can be explained by a number of factors.
The phenomenon is the result of the continuation of corporate globalization strategy.
It also represents adjustment efforts responding to EC integration in 1992. The
international exchange rate realignment has made it profitable for investors in currency
appreciated home countries to invest in depreciated exchange rate host countries.
Furthermore, to export directly from the less developed host countries to the
industrialized markets may help the home countries to avoid import surcharge. Above
all, the labour markets are tight in Japan and the ANIES. Therefore, to relocate
labour-intensive manufacturing process to lower wage countries helps these economies
to reduce production cost and to facilitate economic transformation into production
areas where new comparative advantage prevails.
Intra-regional investment flow is even a better indicator of regional interdependence
than trade flow, because investment is likely to create a deeper and more stable pattern
of regional specialization over time. The growth in intra-regional flow of FDI in Asia
has generated two significant effects on the production structure of the region. First, it
is observed that the export structure of Japan and the ANIES has changed, with the
share of consumer goods and components and parts declining and the share of capital
goods increasing.2 Second, the increase in the procurement of parts and components
in the host countries has given rise to a highly specialized production system, especially
in the ASEAN region. A typical example is the intra-regional supply of auto-parts to
- 6-
Page 30Page 31