Analyzing the governance-FDI nexus in Southeast Asia: An EGLS-SUR panel analysis

Economic and institutional factors influence foreign direct investment (FDI) inflows. To address limitations in previous regional research, this study uses a balanced panel dataset spanning 19 years across all ten ASEAN member states. Employing a panel EGLS (cross-sectional SUR) methodology, we evaluate all six Worldwide Governance Indicators (WGI), both aggregated and disaggregated, alongside five macroeconomic controls: economic growth, exchange rate, financial development, unemployment, and human development. Results indicate that while aggregate governance significantly influences FDI, individual WGI dimensions are heterogeneous. Specifically, voice and accountability, rule of law, and control of corruption consistently exert positive effects, whereas other dimensions are inconsistent or unexpectedly negative. All control variables remain significant, aligning with theoretical frameworks. This study contributes through its full regional coverage and detailed analysis of governance dimensions, providing a clearer understanding of investment behaviors. The findings offer important policy implications: achieving sustainable economic growth via FDI requires targeted improvements in specific governance dimensions rather than broad institutional changes.