Competing for Business

The report examines how Southeast Asian countries use investment incentives to attract FDI and the resulting impacts on sustainable development. While incentives have contributed to economic growth and job creation in some nations, the report finds significant evidence of redundancy, where investments would have occurred regardless of incentives. It highlights the importance of a supportive overall investment environment over isolated incentives and notes that environmental impacts remain under-researched. The document also discusses regional investment competition, the 'China effect', and the role of bilateral and regional treaties in shaping investment regimes.

• Investment incentives in Southeast Asia have shown mixed results regarding economic growth; while they helped drive export growth in the electronics sectors of Singapore, Malaysia, and Thailand, they were not a sufficient condition for attracting FDI in other contexts.
• There is significant evidence of 'redundancy' in investment incentives, meaning investments would have been made even without them. In Vietnam, the Philippines, and Indonesia, redundancy rates have been estimated between 70 and 80 per cent.
• The monetary cost of incentives in terms of foregone tax revenue is substantial. In the Philippines, redundant incentives resulted in an estimated loss of US$770 million in 2004, while in Vietnam, the cost of preferential corporate income tax rates was estimated at up to US$224 million (0.7 per cent of GDP) in 2001.
• Technology and knowledge spillovers from FDI are not automatic and depend heavily on local absorptive capacities. Singapore and Malaysia have successfully leveraged FDI for technology transfer due to high rankings in education and innovation, whereas Cambodia has seen relatively few new technologies.
• FDI has generated significant employment, particularly in manufacturing and through export processing zones, but growth in capital-intensive sectors like mining and hydropower in Laos and Vietnam has seen employment lag behind capital inflows.
• Environmental impacts of investment incentives are under-researched, but concerns exist regarding 'pollution havens' and the degradation caused by large-scale hydropower, mining, and industrial agriculture in Cambodia and the Lao PDR.
• Incentive-based competition is prevalent among Southeast Asian countries with similar factor endowments, leading to 'bidding wars' in sectors such as automobiles, petrochemicals, electronics, and information technology.
• The 'China effect'—the diversion of FDI to China—is often overestimated. While China may have diverted some FDI from Indonesia and Malaysia, it has in some cases helped attract investment to the region by creating a market for components assembled in China, such as in the Philippines.
• Bilateral investment treaties and regional agreements like the ASEAN Comprehensive Investment Agreement (ACIA) often prohibit performance requirements, which critics argue limits the ability of recipient countries to promote domestic development through linkages.

APA

Baumüller, H. (2009). Competing for Business. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/competing_business_southeast_asia.pdf

Chicago

Baumüller, Heike. Competing for Business. International Institute for Sustainable Development, 2009. https://www.iisd.org/system/files/publications/competing_business_southeast_asia.pdf.

Wikipedia

{{cite report |last1=Baumüller |first1=Heike |title=Competing for Business |publisher=International Institute for Sustainable Development |date=2009 |url=https://www.iisd.org/system/files/publications/competing_business_southeast_asia.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{baumller2009competing, author = {Baumüller, Heike}, title = {{Competing for Business}}, institution = {International Institute for Sustainable Development}, year = {2009}, url = {https://www.iisd.org/system/files/publications/competing_business_southeast_asia.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }