Impacts of Foreign Capital Inflows on Domestic Savings in 6 ASEAN Countries: A Panel Data Analysis

This paper examines the impact of different categories of foreign capital inflows (FDI, Portfolio investment, and other investment) on domestic savings in 6 ASEAN countries, namely Indonesia, Malaysia, Philippines, Singapore, and Thailand, and Lao PDR. The study is conducted for two periods: 1990-2015, and 2000-2015 based on regression analyses utilizing Panel and Cross-section data of the selected ASEAN countries. The results show that foreign capital inflows at aggregate level displaces domestic savings. Of all categories of foreign capital inflows, only FDI has significantly positive impact on gross domestic savings rate in the two periods while short-term capital flows such as portfolio investment and other investment are not found to have any significant impact on domestic savings in the studied periods, and short-term capital flows show the increase in its volatile nature which is vulnerable to sustainable economic development. The results indicate the importance of trade liberalization, domestic financial development, and domestic investment to enhance domestic savings.