The impact of inward foreign direct investment on ASEAN countries’ participation in global value chains

This paper empirically examines the structural impact of inward foreign direct investment (FDI) on global value chain (GVC) participation utilizing a panel dataset covering nine ASEAN economies over the period of 2000–2020. The analysis distinguishes between aggregate GVC participation and its forward and backward components. It investigates how the FDI-GVC relationship varies across countries at different stages of economic development and levels of industrial sophistication. The results reveal a clear asymmetry in the effects of FDI. Inward FDI is positively and significantly associated with aggregate GVC participation and backward linkages, while its effect on forward linkages is statistically insignificant. This pattern is more pronounced in middle- and low-income ASEAN economies, whereas FDI shows no significant association with GVC participation in high-income member states. Furthermore, the marginal effect of FDI on GVC participation declines as the level of industrial technological sophistication increases. These findings suggest that while FDI contributes to expanding ASEAN’s integration into global production networks, its role in facilitating upgrading toward upstream activities remains limited. Complementary policies aimed at strengthening domestic absorptive capacity and industrial capabilities are therefore important to translate FDI-driven integration into qualitative upgrading within GVCs.