Correlation Network Analysis of ASEAN Foreign Direct Investment

Although ASEAN aims to promote regional economic and security cooperation, among others, the empirical evidence in this study evinces that the impact of ASEAN on the economic integration between ASEAN countries remains limited. The economic integration is investigated based on the association of foreign direct investments (FDI) between Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. The longest common period of the FDI series is 29 years beginning in 1993. We examine the yearly FDI performances using a time series plot and descriptive statistics including the coefficient of variance for performance consistency. The association, strength, and effect of ASEAN economic integration are measured and illustrated by using Pearson's correlation matrix-circle plot. There are 45 unique associations representing the economic integration between ASEAN countries that unfortunately exist only in moderate strength, at most. The highest association of 0.62 is between Cambodia and Laos, and there is negligible association between Philippines-Vietnam and Indonesia-Philippines. It is also noted that almost 60% of the associations are positively correlated to one another. For the second objective, the correlations are clustered and visualized using network plots. The correlation- based network plot reveals two subgroups linking Indonesia- Cambodia-Singapore-Laos and Malaysian-Vietnam-Brunei closer together, while Thailand, Myanmar, and the Philippines are isolated from the subgroups. The most long-lasting interconnections between economies are found in the subgroup centered on Cambodia. In addition, there are only 14 weak- medium integrated links when clustering the correlation values above magnitude 0.3. The results suggest that the vast economic cooperation opportunities have not been fully explored among the ASEAN countries. Therefore, strategies may be necessary, such as adding packages and quotas to attract FDI from individual investors from ASEAN countries in addition to the redistribution of some government foreign investments outside the ASEAN region to ASEAN countries.