The complementarity of foreign direct investment and migration policy and economic development in Australia, Malaysia and the Asia-Pacific

Abstract

This thesis investigates the circumstances under which migration and foreign direct investment (FDI) are complementary and conducive to economic development and what national and regional policies might enhance their joint and positive effects. A central idea is that factor flows, policies and development drivers may be mutually reinforcing, with prevailing policy biases against migration impeding the realisation of potential benefits.

The study has four broad components. It begins by theoretically and empirically exploring the relationships between migration, FDI and host country characteristics, identifying what determines concurrent net migrant and FDI inflows. The analysis is situated along the economic development path to relate factor flow complementarity to improving economic outcomes. Leading development drivers - investment in human capital and institutional improvements - are identified as the main determinants of concurrent migrant and FDI inflows. These policy-influenceable characteristics matter more than resource endowments or geography, suggesting that the economic benefits of complementarity in labour and investment inflows can be harnessed by any country that pursues pro-development policies. These ideas are explored further through detailed Australia and Malaysia case studies. In Australia, major historical shifts towards a more diverse, skilled and temporary migrant intake are demonstrated empirically to have increased FDI inflows. For Malaysia, migration's unacknowledged contribution to rapid economic development (alongside FDI) and claims that a near unlimited supply of low-skilled foreign workers impedes industrial upgrading are interrogated. While complementarity in factor flows has supported development in both countries, differences in its manifestation (such as directionality from FDI to migration and vice versa) and economic outcomes provide nuanced insights.

The Australian and Malaysian case studies also incorporate investigation of policy influences - migration policies on FDI flows, FDI policies on migration flows and policy interrelationships. For both countries, quantitative policy indicators - contextualising and categorising policy changes across each country's modern history - are developed and employed for this purpose. Tightening FDI policy generally reduces migration inflows, tightening migration policy mostly increases FDI inflows, while the formulation of FDI and migration policies appears largely independent in both countries. Migration policy's influence on FDI appears to result from policies favouring incumbent firms, with biased liberalisation creating an unintended deterrent to new FDI.

The findings are applied to the regional context, offering recommendations for countries individually and collectively. That exercise is underpinned by a point-in-time snapshot of policy settings for 23 Asia-Pacific countries capturing over 200 policy elements. Policies to better leverage migration, FDI and their complementarity to support development abound, with areas of potential improvement identified for all sample countries. Show more