The relationship between good governance and foreign direct investment in East Asia’s knowledge-

based economic growth

Debnath Sajit Chandra,Doctor with Business Expertise (DBE) Program, Kyushu University;

PhD Candidate, Ritsumeikan Asia Pacific University, Japan.

Dr. A Mani,Professor at Ritsumeikan Asia Pacific University, Japan.

Contents• Introduction• Methodology and data sources• Different approaches of economy• Relationship mechanism among good governance, FDI and KBE in

East Asia• The impact of good governance in promoting KBE in East Asia– Good Governance in East Asia– The Role of good governance in promoting KBE in East Asia– The Current Status of Knowledge-based Economy in East Asia

• Statistical Findings• Conclusion

Introduction• Knowledge-based economy: An economy that creates and

diffuses knowledge and thereby achieves economic growth.

• Different schools of growth theory, whether of the neoclassical or endogenous types, have all recognized the indispensable role of technological progress and its corollary, knowledge, in sustaining the growth process and increasing the level of per capita income.

• Many East Asian economies have shown remarkable success in creating a knowledge-based economy.

• This paper attempts to explain the relationship between good governance and foreign direct investment in East Asia’s knowledge-based economic growth.

Methodology and Data Sources• Methodology

– Qualititative Analysis.– Quantitative Analysis using SPSS software.

• Data Sources– Qualitative Analysis

• Published articles and books

– Quantitative Analysis• Worldwide Governance Indicators, 1996-2007 available at

http://info.worldbank.org/governance/wgi/sc_country.asp• IMD online.• Government Finance Statistics Yearbook 2007.• UNESCO online database (http://stats.uis.unesco.org).• World Development Index Database.• The Conference Board and Groningen Growth and Development Centre, Total Economy

Database, September 2008. Retrieved from http://www.conference-board.org/economics/ on 8th November, 2008.

Different approaches of economyNeoclassical Approach

Knowledge Economy Approach

Industrialization

Knowledge-based Economy

Economic Growth

The Innovation System

Education and Human Resources

Information and Communication

Technology

Economic Incentives and Institutional

Regime

Explains shift from traditional economic system

Does not explain shift from traditional economic system

Market-friendly view

State Interventionist View

Combination of Market-friendly and State Interventionist View

Knowledge-based Economy View

Developmental State Approach

Market-Enhancing Approach

Relationship mechanism among good governance, FDI and KBE in East Asia

Good Governanc

e

Attracts FDI and allows Domestic

Investment

Development of KBE

Infrastructure

KBE

The impact of good governance in promoting KBE in East Asia

–Good Governance in East Asia–The Role of good governance in promoting

KBE in East Asia–The Current Status of Knowledge-based

Economy in East Asia

The impact of good governance in promoting KBE in East Asia

–Good Governance in East Asia–The Role of good governance in promoting

KBE in East Asia–The Current Status of Knowledge-based

Economy in East Asia

• Taiwan’s data is not available.

The impact of good governance in promoting KBE in East Asia

–Good Governance in East Asia–The Role of good governance in promoting

KBE in East Asia–The Current Status of Knowledge-based

Economy in East Asia

Country Rank

Change in Rank

from 1995

Missing Data

KEI KI

Economic Incentives

and Institutional

Regime

The Innovation System

Education and

Human Resources

Information and

Communication Technology

(ICT)

Taiwan 1 2 X 8.67 8.78 8.35 9.24 8.03 9.07

Japan 2 -1   8.53 8.80 7.71 9.15 8.70 8.55

Singapore 3 -1 X 8.41 7.97 9.71 9.56 5.16 9.19

Hong Kong 4 -1 8.18 7.71 9.6 8.63 5.23 9.27

Malaysia 5 0 X 6.16 6.16 6.18 6.82 4.35 7.3

China 7 1 X 4.36 4.48 4.01 5.1 4.06 4.28

Current Status of KBE in East Asia

Statistical FindingsRegulatory

QualityRule of

LawGovernment Effectiveness

Voice & Accountability

Political Stability

Control of Corruption

FDI inflows ** ** ** ** **Public spending on Education

* *

R&D Expenditure

* ** ** ** ** **ICT Expenditure

**

Conclusion

• It is evident that the same countries that have superior good governance have performed better in terms of creating knowledge-based economy.

• This study of selected East Asian Countries indicates a positive relationship between FDI in East Asia’s knowledge-based economic growth.

Thank you for

your attention