Balancing Economic Integration and Dependency: Insights Into Trade and Investment Dynamics in the Indo‐Pacific

ABSTRACT This study examines the impact of trade diversification, foreign direct investment (FDI) inflows, and macroeconomic fundamentals on economic dependency on China among members of the Indo‐Pacific Economic Framework for Prosperity (IPEF). Grounded in dependency theory, it highlights the risks of overreliance on a dominant partner. Using panel data from 2014 to 2023 across 10 IPEF member countries, the analysis employs ordinary least squares (OLS), Generalized Least Squares (GLS), and the Driscoll–Kraay estimators to assess export and import‐driven dependencies. Findings indicate that greater trade openness and strong gross domestic product (GDP) growth reduce reliance on China, while exchange rate stability fosters diversified trade relationships. However, FDI inflows have a dual effect: supporting industrial development while also reinforcing dependency. The study shifts the policy question from “ how much ” to trade or invest toward “ how to shape ” the composition and conditions of trade, finance, and macroeconomic policy so that openness translates into resilience. Further research should explore financial and technological dependencies.