Achieving Regional Convergence through the Role of Foreign Direct Investment and Portfolio Investment: Evidence from ASEAN+3

The purpose of this study is to analyze the effect of foreign direct investment and portfolio investment on the convergence occurrence of economic growth of countries in the ASEAN + 3 region and to determine the time or speed required to achieve convergence. The type of data used in this research is secondary data panel which is combination between time series data and cross-section data with annual time period 2001-2015 and number of ASEAN member country that is Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, Viet Nam and plus three countries namely China, Korea and Japan. So the total observation is 195. The analytical method used is the Arellano Bond dynamic panel. The results of the study show that the first lag variable of economic growth, Foreign Direct Investment (FDI) and portfolio investment have a significant influence on economic growth in ASEAN + 3, but not on ASEAN without China, Japan, and Republic Korea. Foreign Direct Investment (FDI) has a greater influence on changes in economic growth than portfolio investment. Half-life conditional convergence shows a value of 10.63 years which means the time required achieving steady-state conditions of the convergence process or the time required to achieve half of the convergence at convergence rates reaches 0.065% / year. Meanwhile, the influence of portfolio investment provides a greater speed of adjustment to the convergence process than foreign direct investment, but in a half-life of convergence, foreign direct investment is faster than the influence of portfolio investment.