The Role of Foreign Direct Investment and Trade in Urbanization in Developing Asia: Structural Changes after the Global Financial Crisis

Abstract

A dynamic between foreign direct investment (FDI) and international trade, and the level of urbanization, has been observed in many developing countries. This study seeks to fill a literature gap on the extent that FDI and international trade impact developing Asian economies through urbanization. The study explores the relationship between FDI, international trade, and urbanization in 31 developing Asian economies from 1991 to 2019, utilizing the dynamic panel model. Empirical results imply the significant effect of FDI inflows and trade openness on urbanization in developing Asia. The impact is clearly observed following the global financial crisis despite increased deglobalization. This finding supports the existence of structural changes and the transformation of economies in the region, which, among other factors, are driven by stronger global supply chains and improved logistics infrastructure in developing Asia.