Empirical Investigation of Foreign Direct Investment and Current Account Balance in East Asian Economies

Among the Asian regions the East Asia is the largest recipient of foreign direct investment (FDI). The FDI by affecting the host country’s exports and imports may also influence the current account balance (CAB) of that country. The East Asian economies are facing the persistent current account deficit. The current study investigates the impact of FDI inflows on CAB and on its components (exports and imports) for a panel of selected East Asian economies. The study employs System Generalized Method of Moments (Sys GMM) estimation technique on a panel of five countries for the years 2000-2016. FDI is found to have negative effect on current account deficit and positive effect on exports and imports of the selected economies. It is concluded that by improving the host country’s exports, FDI inflows can improve CAB in case of East Asian selected economies.