Transactions: A New Look at Service Sector Foreign Direct Investment in Asia

Abstract

This paper presents new micro-level data consisting of individual greenfield investment projects and mergers and acquisitions as a source for detailed analysis of service sector cross-border investment flows among the Asian Development Bank (ADB) regional members. The new transactional foreign direct investment (FDI) data are methodologically distinct from traditional BPM5- compliant FDI data but found to yield generally comparable aggregates, when compared with the latest available International Monetary Fund (IMF) data from the Comprehensive Direct Investment Survey for the ADB regional members. The service sectors are found to receive considerably larger amounts of foreign investment, when compared with the Asian region’s manufacturing and raw materials sectors. Organisation for Economic Co-operation and Development (OECD) countries account for roughly three-quarters of total recorded inward service sector FDI of about $2 trillion, relatively evenly split between the United States, the EU-27, and regional OECD-level-income countries. The presence of sizable regional “upward flowing” service sector investments into OECD-levelincome economies is verified. Preliminary policy conclusions are drawn based on the new transactional FDI data results concerning prospects for regional service sector liberalization, threshold income levels for inward service sector FDI, upward-flowing regional services FDI, and preferred modes of service sector investments.