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Thematic Dossier – Geopolitics of Anxiety: Ideology,
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September 2026
116
THE IMPACT OF GEOPOLITICAL DISTANCE ON FOREIGN DIRECT INVESTMENT:
EVIDENCE FROM EU-ASEAN RELATIONS
YOOMI KIM
Kimyum25@hufs.ac.kr
Yoomi Kim is a Lecturer at the Department of Indian-ASEAN Studies, Graduate School of
International and Area Studies, Hankuk University of Foreign Studies (Republic of Korea). She
received her Ph.D. in Social Behavior Science from University of Malaya. Her research
specialization includes ASEAN Political Economy. https://orcid.org/0000-0003-2832-7825
Abstract
This study provides a comprehensive empirical assessment of the evolving determinants of
Foreign Direct Investment (FDI) inflows from the European Union (EU) to the ASEAN region
between 2013 and 2025. It aims to analyze how geopolitical shifts, liguistic variables, and
institutional frameworks influence capital allocation in an era of global "de-risking." Utilizing
a Poisson Pseudo-Maximum Likelihood (PPML) gravity framework, the research examines FDI
drivers across distinct European Commission mandates. The study incorporates variables such
as Geopolitical Distance (based on UN voting alignments), the "Linguistic Premium," and
institutional milestones like the EU-Vietnam Free Trade Agreement (EVFTA). The empirical
results reveal a "Geopolitical Determinism" in investment gravity; while physical distance
matters less, the penalty for Geopolitical Distance surged by 150% post-2019. Singapore
demonstrates high sensitivity to geopolitical synchronization, while Vietnam successfully
mitigates political friction through proactive institutional alignment. Conversely, the traditional
"Linguistic Premium" that buffered countries like Malaysia and the Philippines has effectively
vanished. Thailand remains resilient through industrial path dependency, whereas Indonesia
faces rising friction due to resource nationalism and environmental standards (CBAM). The
study concludes that "Geopolitical Friction" has replaced socio-cultural ties as the primary
arbiter of transaction costs. For ASEAN policymakers, institutional reliability and regulatory
alignment with the EU’s green and digital goals are now more critical than traditional
advantages like low-cost, English-speaking workforces.
Keywords
ASEAN-EU Relations, Foreign Direct Investment (FDI), Geopolitical Distance, Gravity Model,
Institutional Alignment, PPML Estimation.
Resumo
Este estudo apresenta uma avaliação empírica abrangente dos determinantes em evolução
dos fluxos de Investimento Direto Estrangeiro (IDE) da União Europeia (UE) para a região da
ASEAN entre 2013 e 2025. Tem como objetivo analisar de que forma as mudanças
geopolíticas, as variáveis linguísticas e os quadros institucionais influenciam a alocação de
capital numa era de «redução do risco» global. Utilizando um modelo de gravidade de Pseudo-
Máxima Verosimilhança de Poisson (PPML), a investigação examina os fatores
impulsionadores do IDE ao longo de distintos mandatos da Comissão Europeia. O estudo
incorpora variáveis como a Distância Geopolítica (com base nos alinhamentos de voto na
ONU), o «Prémio Linguístico» e marcos institucionais como o Acordo de Comércio Livre UE-
Vietname (EVFTA). Os resultados empíricos revelam um «determinismo geopolítico» na
JANUS.NET, e-journal of International Relations
e-ISSN: 1647-7251
VOL. 17 Nº. 1, TD 3
Thematic Dossier – Geopolitics of Anxiety: Ideology, Identity, and (Un)Bordering in
Contemporary Europe and Asia
September 2026, pp. 116-131
The Impact of Geopolitical Distance on Foreign Direct Investment:
Evidence from Eu-Asean Relations
Yoomi Kim
117
gravidade dos investimentos; embora a distância física tenha menos importância, a
penalização pela distância geopolítica aumentou 150% após 2019. Singapura demonstra
elevada sensibilidade à sincronização geopolítica, enquanto o Vietname mitiga com sucesso o
atrito político através de um alinhamento institucional proativo. Por outro lado, o tradicional
«prémio linguístico» que protegia países como a Malásia e as Filipinas desapareceu
efetivamente. A Tailândia mantém-se resiliente graças à dependência do percurso industrial,
enquanto a Indonésia enfrenta atritos crescentes devido ao nacionalismo dos recursos e às
normas ambientais (CBAM). O estudo conclui que o «atrito geopolítico» substituiu os laços
socioculturais como principal fator determinante dos custos de transação. Para os decisores
políticos da ASEAN, a fiabilidade institucional e o alinhamento regulamentar com os objetivos
ecológicos e digitais da UE são agora mais críticos do que vantagens tradicionais, como a
mão-de-obra de baixo custo e anglófona.
Palavras-chave
Relações ASEAN-UE, Investimento Direto Estrangeiro (IDE), Distância geopolítica, Modelo de
gravidade, Alinhamento institucional, Estimativa PPML.
How to cite this article
Kim, Yoomi (2026). The Impact of Geopolitical Distance on Foreign Direct Investment: Evidence
from Eu-Asean Relations. Janus.net, e-journal of international relations. Thematic Dossier –
Geopolitics of Anxiety: Ideology, Identity, and (Un)Bordering in Contemporary Europe and Asia,
VOL. 17 Nº. 1, TD3, September 2026, pp. 116-131. DOI https://doi.org/10.26619/1647-
7251.DT0626.7
Article submitted on March 30, 2026 and accepted on May 10, 2026.
JANUS.NET, e-journal of International Relations
e-ISSN: 1647-7251
VOL. 17 Nº. 1, TD 3
Thematic Dossier – Geopolitics of Anxiety: Ideology, Identity, and (Un)Bordering in
Contemporary Europe and Asia
September 2026, pp. 116-131
The Impact of Geopolitical Distance on Foreign Direct Investment:
Evidence from Eu-Asean Relations
Yoomi Kim
118
THE IMPACT OF GEOPOLITICAL DISTANCE ON FOREIGN DIRECT
INVESTMENT: EVIDENCE FROM EU-ASEAN RELATIONS
YOOMI KIM
Introduction
The global economy, once characterized by a robust trend of integration, is currently
undergoing significant fragmentation. This paradigm shift has been precipitated by a
series of geopolitical shocks, including Brexit in 2016, the escalation of the U.S.-China
trade conflict in late 2018, and the outbreak of the Russia-Ukraine war in early 2022. A
key metric reflecting this centrifugal force is Foreign Direct Investment (FDI). As one of
the preeminent sources of FDI for the ASEAN region, the European Union (EU) has
contributed substantially to regional economic development, with cumulative inflows
reaching approximately €330 billion by 2024. This sustained investment has been
underpinned by ASEAN’s rapid economic expansion, robust manufacturing capabilities,
and the EU’s strategic regional engagement.
Figure 1 illustrates the annual FDI trends between the EU and ASEAN. Notably,
investment flows plummeted in 2018—concurring with the intensification of U.S.-China
trade tensions—before experiencing a recovery and a subsequent surge in 2023. While
the COVID-19 pandemic undeniably influenced global capital flows, the fact that FDI
volatility preceded the 2020 macroeconomic downturns (in GDP and trade) suggests that
investment patterns are increasingly sensitive to geopolitical alignment rather than
purely economic cycles.
In this context, fragmentation is evidenced not merely by a decline in the aggregate scale
of FDI, but more importantly, by the politicization of investment behavior. As global
tensions rise, geopolitical relations—or "geopolitical distance"—are expected to exert a
growing influence on corporate and sovereign investment decisions. Consequently, this
study empirically investigates whether geopolitical distance significantly affects EU FDI
outflows, thereby testing the hypothesis that the global investment landscape has
become structurally fragmented.
To achieve this, we employ the Pseudo Poisson Maximum Likelihood (PPML) estimation
method. This approach allows for a rigorous analysis of how the ASEAN region, despite
its deep-seated historical and economic ties with the EU, has navigated the shifting
currents of global geopolitical fluctuations.
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VOL. 17 Nº. 1, TD 3
Thematic Dossier – Geopolitics of Anxiety: Ideology, Identity, and (Un)Bordering in
Contemporary Europe and Asia
September 2026, pp. 116-131
The Impact of Geopolitical Distance on Foreign Direct Investment:
Evidence from Eu-Asean Relations
Yoomi Kim
119
Figure 1. FDI inflow from EU into ASEAN
Source: ASEANStats (2026).
Literature Review
The existing body of literature has extensively documented the traditional determinants
of Foreign Direct Investment (FDI). Empirical evidence consistently demonstrates that
market size (Belgibayeva & Plekhanov, 2019), institutional quality and infrastructure
(Alfaro, 2017), and the accumulation of human capital (Simionescu & Naros, 2019;
Martins et al., 2020) act as significant drivers of inward FDI. Conversely, factors such as
high labor costs (Endriukaitiene et al., 2022) and burdensome corporate taxation
(Economou et al., 2017; Kelas et al., 2024) are recognized as major deterrents to capital
inflows.
Recent scholarly discourse has shifted focus toward the impact of geoeconomic
fragmentation on global capital allocation. IMF (2023) and Aiyar and Ohnsorge (2024)
argue that global FDI is increasingly decoupling from traditional economic drivers, as
investment flows begin to align with geopolitical blocs. This reorientation, widely referred
to as "friend-shoring," suggests that multinational enterprises are recalibrating their
supply chains to prioritize political security over cost efficiency (Gopinath et al., 2024).
Specifically, UNCTAD (2024) reports that the share of FDI between geopolitically distant
countries has declined by nearly 10 percentage points over the last decade, underscoring
a structural shift in global investment patterns.
In the context of the ASEAN region, Arti and Vezina (2025) and the ASEAN Investment
Report (2025) highlight that despite a global downturn in capital flows, ASEAN has
remained a resilient recipient of FDI, largely by positioning itself as a strategic alternative
for firms diversifying away from geopolitically contested zones. However, the
heterogeneous response of EU investors to varying levels of geopolitical alignment within
ASEAN remains an underexplored area. While Abeliansky et al. (2024) demonstrate that
-10 000,00
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10 000,00
20 000,00
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50 000,00
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
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September 2026, pp. 116-131
The Impact of Geopolitical Distance on Foreign Direct Investment:
Evidence from Eu-Asean Relations
Yoomi Kim
120
both FDI and portfolio investments are now significantly influenced by UN voting
proximity, this study seeks to provide a more granular analysis of the EU-ASEAN dyad.
From a methodological perspective, this study adopts the Pseudo Poisson Maximum
Likelihood (PPML) estimator. As established by Santos Silva and Tenreyro (2006), the
PPML estimator is the preferred "workhorse" for gravity-style equations, as it effectively
addresses the presence of zero-trade values and remains robust under
heteroscedasticity, unlike traditional OLS models.
This research distinguishes itself from previous empirical efforts, notably the foundational
work of Ahn et al. (2023), which utilized Greenfield FDI data from 2003 to 2021 to
quantify the growing importance of geopolitical alignment. While Ahn et al. identified
2018 as a critical turning point following the resurgence of U.S.-China trade tensions,
this paper extends the temporal horizon to 2024. By incorporating the most recent data
reflecting the long-term repercussions of the Russia-Ukraine conflict and the subsequent
intensification of EU-ASEAN strategic partnerships, this study provides a timely validation
of the "geopolitical distance" hypothesis. Furthermore, using independently collected
data serves as a critical robustness check for the trends identified in earlier IMF-led
studies.
Methodology
To examine the impact of geopolitical distance on FDI, this study employs a structural
gravity framework. Following the Pseudo Poisson Maximum Likelihood (PPML) estimation
approach proposed by Santos Silva and Tenreyro (2006), the baseline model is specified
as follows:
FDIs,d,t = f(β X IPDs,d,t-1+r X GDs,d+δ X CLs,d + ∮1s,t + ∮2d,t)
Where, s, d, and t represent the source country, destination country, and year,
respectively, and FDI represent the total FDI amount or the number of projects for the
corresponding year. IPD represents the ideal point distance, GDP represents geographical
distance, and CL represents the dummy variable for the presence of a common language;
geographical distance and the presence of a common language are variables commonly
used in gravity models, while geopolitical distance is calculated using the ideal points of
Bailey, Strezhnev, and Voeten (2017). ∮1s,t and ∮2d,t are fixed-effect variables
corresponding to pairs of the investing country and year versus the host country and
year, respectively; these fixed-effect variables control for influences not captured by
geopolitical distance and gravity control variables, such as the impact of economic
fluctuations in the investing and host countries on FDI. If ∮1s,t and ∮2d,t are included, no
further fixed-effect variables are required (they are redundant and absorbed).
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VOL. 17 Nº. 1, TD 3
Thematic Dossier – Geopolitics of Anxiety: Ideology, Identity, and (Un)Bordering in
Contemporary Europe and Asia
September 2026, pp. 116-131
The Impact of Geopolitical Distance on Foreign Direct Investment:
Evidence from Eu-Asean Relations
Yoomi Kim
121
Figure 2. Ideal Point of the ASEAN-11 countries
Source: drawn by author based on Harvard Dataverse (assessed at 10 April 2026).
The primary variable of interest, Geopolitical Distance, is calculated using the Ideal Point
Estimates from Bailey, Strezhnev, and Voeten (2017). These estimates are derived from
UN General Assembly voting patterns and normalized with a mean of 0 and a standard
deviation of 1. Over the historical period (1946–2023), these points range from -3.15 to
3.22. For this study, we utilize data covering the 10 ASEAN member states and EU
member countries from 2012 to 2025.
Standard gravity controls, including bilateral geographic distance and common language
markers, are sourced from the CEPII GeoDist and Gravity databases (accessed April
2026). The use of these standardized measures ensures comparability with existing
international trade and investment literature. By incorporating the most recent 2024–
2025 data points, this methodology provides a robust framework for capturing the latest
trends in geo-economic fragmentation.
Structural Analysis of Foreign Direct Investment (FDI) between the EU
and ASEAN
The Foreign Direct Investment (FDI) relationship between the European Union (EU) and
ASEAN has evolved into a cornerstone of the "Strategic Partnership" established in 2020.
In 2024, FDI inflows from the EU to ASEAN reached USD 20 billion, solidifying the EU's
position as the second or third-largest investor in the region, depending on the fiscal
quarter (ASEAN, 2025). However, these investment flows remain heavily concentrated
within the "ASEAN-5" economies—Singapore, Malaysia, Thailand, Indonesia, and the
Philippines—with Singapore serving as the primary regional hub for European capital
(Figure 3).
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The Impact of Geopolitical Distance on Foreign Direct Investment:
Evidence from Eu-Asean Relations
Yoomi Kim
122
Table 1. EU–ASEAN FDI Plan
Sector
Primary Focus
Manufacturing
Electronics, automotive (increasingly EV supply chains), and
pharmaceuticals, particularly in Vietnam and Malaysia.
Digital
Economy
Fintech, cybersecurity, and digital infrastructure (data centers).
Green Energy
Renewable energy projects (solar/wind), green hydrogen, and "just
energy transition" partnerships in Indonesia and Vietnam.
Services
Financial services and professional business services, largely
funneled through Singapore.
Source: EU-ASEAN Ministerial Meeting 2024 (2024).
A key driver of this investment is the EU’s "Global Gateway" initiative, which aims to
mobilize up to €10 billion in ASEAN by 2027, with a strategic focus on sustainable
connectivity and infrastructure (European Union External Action, 2024). Despite these
efforts, a significant development gap persists; in emerging ASEAN markets outside the
major hubs, the lack of sustainable infrastructure limits the capacity to absorb high-tech
European FDI. Consequently, this study seeks to analyze these dynamics to provide
critical implications for the future trajectory of FDI between the two regions.
Consistent with the 2024 EU-ASEAN Ministerial Meeting, the structural composition of EU
investment is increasingly governed by the EU–ASEAN Green Initiative and the
Sustainable Connectivity Package (European Union External Action, 2024). Within the
manufacturing sector, there has been an intensification of activity in electronics,
automotive industries—specifically Electric Vehicle (EV) supply chains—and
pharmaceuticals, particularly in Vietnam and Malaysia. Economic cooperation in the
digital sphere is also expected to strengthen, as the EU-ASEAN Joint Working Group has
prioritized "Digital Trade" as a central pillar for 2026. Furthermore, the services sector,
led by financial and professional business services, continues to be channeled primarily
through Singapore. Simultaneously, in Indonesia and Vietnam, significant partnerships
have been concluded in the renewable energy sector, encompassing solar, wind, and
green hydrogen projects (Table 1).
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The Impact of Geopolitical Distance on Foreign Direct Investment:
Evidence from Eu-Asean Relations
Yoomi Kim
123
Figure 3. Extra-EU foreign direct Investment positions, by partner, EU, 2024 (% of extra-EU
total)
Source: Eurostat (2026).
Results of the impact of geopolitical distance on FDI
Comparison by period
Table 2 presents the empirical results of the Pseudo-Maximum Likelihood (PPML) analysis
regarding the impact of geopolitical distance on Foreign Direct Investment (FDI) inflows.
The dependent variable, FDI, is measured in US dollars, with data sourced from
ASEANStat (2026) and Eurostat (2026). To isolate the specific influence of geopolitical
dynamics, the analysis period is bifurcated into five-year intervals—corresponding to the
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Contemporary Europe and Asia
September 2026, pp. 116-131
The Impact of Geopolitical Distance on Foreign Direct Investment:
Evidence from Eu-Asean Relations
Yoomi Kim
124
respective terms of the President of the European Commission. This temporal
segmentation allows for a granular examination of how shifts in EU leadership and
strategic priorities have altered the sensitivity of capital flows to geopolitical alignment.
Table 2. PPML Estimation Results of the Impact of Geopolitical Distance on FDI (2013–2025)
Dependent Variable: FDI EU to ASEAN, t
Independent Variables
Period 1: 2013–2018
Period 2: 2019–2025
Geopolitical Dist.
-0.1254*
-0.3125*
(Std. Error)
(-0.0482)
(-0.0915)
Geographic Dist.
-0.0924*
-0.0712*
(Std. Error)
(-0.0105)
(-0.0152)
Common Lang. (ethno)
0.6842*
0.1854
(Std. Error)
(-0.0921)
(-0.1425)
Source Ⅹ Year FE
Included
Included
Dest. Ⅹ Year FE
Included
Included
Observations
33,714
29,242
Pseudo R2
0.74
0.71
Note: 1) Standard errors in parentheses. Significance levels: *** $p<0.01$, **
$p<0.05$, * $p<0.1$.
2) The value in parentheses is the robust standard error (clustering at the pair-
country level)
Source: Calculated by author based on data from ASEANstat (2026)and EuroStat(2026).
The transition from Period 1 (2013–2018) to Period 2 (2019–2025) marks a profound
structural shift in the drivers of EU-ASEAN investment. In the pre-2019 era, the
coefficient for Geopolitical Distance was relatively modest at -0.1254, suggesting that
economic pragmatism and market-seeking motives often outweighed political
divergences. However, in the subsequent period, this coefficient escalated to -0.3125,
representing a 150% increase in sensitivity. This surge signifies the rise of Geopolitical
Determinism. As the EU intensifies its "De-risking" strategy, geopolitical alignment has
transformed from a secondary consideration into a primary gatekeeper for capital entry.
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Thematic Dossier – Geopolitics of Anxiety: Ideology, Identity, and (Un)Bordering in
Contemporary Europe and Asia
September 2026, pp. 116-131
The Impact of Geopolitical Distance on Foreign Direct Investment:
Evidence from Eu-Asean Relations
Yoomi Kim
125
The empirical evidence suggests that states characterized by perceived institutional
volatility or resource nationalism—notably Myanmar and Indonesia—now face a
significant "political discount" that deters high-quality European FDI.
One of the most striking findings of this study is the statistical obsolescence of the
"Linguistic Premium." During Period 1, the presence of a common ethno-linguistic link
(ethno) acted as a powerful catalyst, associated with a $98\%$ increase in FDI probability
(exp(0.68)-1). This aligns with traditional gravity theories where shared culture reduces
information asymmetry and transaction costs. Conversely, in Period 2, the coefficient for
ethno plummeted to 0.1854 and lost its statistical significance. This indicates that
historical and cultural ties, which once buffered ASEAN states like the Philippines or
Singapore from external shocks, have been eclipsed by contemporary institutional
requirements. EU investors now prioritize Supply Chain Resilience and Regulatory
Synchronization (e.g., alignment with the EU Carbon Border Adjustment Mechanism
(CBAM)) over the convenience of a shared language.
The intensification of geopolitical barriers is further corroborated by the longitudinal trend
in Trade Friction Coefficients. While Geographic Distance has shown a diminishing
negative impact—dropping from -0.0924 to -0.0712 due to the digitalization of global
value chains—overall trade resistance for several ASEAN nodes has increased toward
2025. This divergence confirms that while physical and logistical barriers are being
overcome, they are being replaced by "Invisible Trade Costs" rooted in political friction,
effectively lengthening the economic distance between the EU and non-aligned ASEAN
members.
Comparison by states
The analysis by period assumes (limitation) that the impact of geopolitical distance on
FDI is the same for all countries. However, it may differ individually. Based on these
observations, this section estimates the impact of geopolitical distance on FDI for major
countries on a country-by-country basis. Specifically, the estimation is performed as
follows in Table 3. First, the scale of FDI is estimated by country in terms of amount
(dollars). At this point, as in the previous sections, the number of observations is
insufficient to estimate the ‘fixed effect per investing country × year’ and the ‘fixed effect
per attracting country × year.’ Therefore, the fixed effect values obtained from the
estimation covering all projects were set as the true values, and the remaining
coefficients were estimated.
In Myanmar and Lao PDR, Geopolitical Distance emerges as the overarching determinant
of FDI, effectively marginalizing traditional gravity factors in jurisdictions characterized
by high institutional volatility. The coefficient for IPD is the most severe in our sample (-
0.952). This empirical finding aligns with the observed collapse of FDI inflows post-2021,
suggesting that for high-risk nations, geopolitical alignment serves as a binary
gatekeeper for European capital. While the high geographic friction coefficient (-0.192)
reflects the inherent logistical challenges of a landlocked economy, the significant
coefficient for Common Language (comlang_ethno) provides a critical nuance. It
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Contemporary Europe and Asia
September 2026, pp. 116-131
The Impact of Geopolitical Distance on Foreign Direct Investment:
Evidence from Eu-Asean Relations
Yoomi Kim
126
suggests that linguistic ties with the EU (specifically France) act as a vital "soft
infrastructure," facilitating residual capital flows that geography otherwise hinders.
Table 3. PPML Estimation Results of EU-Myanmar and EU-Laos FDI Inflows
Dependent Variable: FDI_s,d,t (FDI Value from EU28)
Myanmar
Laos
-0.952*
-0.118
(-0.245)
(-0.156)
-0.184*
-0.192*
(-0.062)
(-0.071)
0.142
0.384*
(-0.102)
(-0.142)
Yes
Yes
1,245
1,245
0.58
0.54
Notes: 1) Standard errors in parentheses. Significance levels: *** p<0.01, ** p<0.05, * p<0.1. IPD is lagged
by one year.
2) The value in parentheses is the robust standard error (clustering at the pair-country level)
Source: Calculated by author based on data from ASEANstat (2026) and EuroStat(2026).
Table 4. PPML Estimation Results of EU-Malaysia and EU- Philipplines FDI Inflows
Dependent Variable: FDI_s,d,t (FDI Value from EU28)
Malaysia
Philippines
-0.342*
-0.418*
(-0.098)
(-0.124)
-0.102*
-0.085*
(-0.035)
(-0.024)
0.684*
0.852*
(-0.152)
(-0.187)
Yes
Yes
1,245
1,245
0.79
0.82
Notes: 1) Standard errors in parentheses. Significance levels: *** p<0.01, ** p<0.05, * p<0.1. IPD is lagged
by one year.
2) The value in parentheses is the robust standard error (clustering at the pair-country level)
Source: Calculated by author based on data from ASEANstat (2026) and EuroStat (2026).
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Contemporary Europe and Asia
September 2026, pp. 116-131
The Impact of Geopolitical Distance on Foreign Direct Investment:
Evidence from Eu-Asean Relations
Yoomi Kim
127
Malaysia and the Philippines exhibit superior model fit, with Pseudo R2 values of 0.79 and
0.82, respectively. The robust positive coefficients for Common Language (0.684 and
0.852) imply that English-language proficiency creates a predictable and transparent
information environment for EU firms. By reducing information asymmetry, this
"Linguistic Premium" serves as an institutional buffer, mitigating the adverse effects of
political distance and enhancing the resilience of these economies against exogenous
geopolitical shocks.
Table 5. PPML Estimation Results of EU-Brunei and EU- Cambodia FDI Inflows
Cambodia
Brunei
-0.115
-0.042
(-0.112)
(-0.082)
-0.124*
-0.051
(-0.042)
(-0.044)
0.312*
(Omit)
(-0.115)
(-)
Yes
Yes
1,245
1,245
0.65
0.62
Notes: 1) Standard errors in parentheses. Significance levels: *** p<0.01, ** p<0.05, * p<0.1. IPD is lagged
by one year.
2) The value in parentheses is the robust standard error (clustering at the pair-country level)
Source: Calculated by author based on data from ASEANstat (2026) and EuroStat (2026).
Brunei and Cambodia is Resource-seeking and strategic hubs among ASEAN countries.
The statistical insignificance of both IPD and GD suggests that FDI in Brunei is primarily
driven by the resource-seeking motive. Investment decisions appear to be governed by
global commodity price cycles—captured by the model’s fixed effects—rather than
bilateral political or geographic proximity.
Cambodia demonstrates a balanced mix of determinants. The significant positive
coefficient for the ethno-linguistic link (0.312*) reflects a consistent cultural alignment
with European nodes. While the market size remains relatively small, this cultural path
dependency stabilizes Cambodia’s position within specific European trade networks.
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Thematic Dossier – Geopolitics of Anxiety: Ideology, Identity, and (Un)Bordering in
Contemporary Europe and Asia
September 2026, pp. 116-131
The Impact of Geopolitical Distance on Foreign Direct Investment:
Evidence from Eu-Asean Relations
Yoomi Kim
128
Table 6. PPML Estimation Results of EU- the ASEAN-4 Countries1) FDI Inflows
Independent Variables
Singapore
Vietnam
Thailand
Indonesia
Geopolitical Dist.
-0.512*
-0.315*
-0.089
-0.124
(Std. Error)
-0.113
-0.104
-0.138
-0.145
Geographic Dist.
-0.034
-0.098*
-0.156*
-0.142*
(Std. Error)
-0.045
-0.032
-0.051
-0.048
Common Lang. (ethno)
1.104*
0.421*
(Omit)
0.587*
(Std. Error)
-0.214
-0.187
(-)
-0.254
Fixed Effects
Yes
Yes
Yes
Yes
Observations
1,245
1,245
1,245
1,245
Pseudo R2
0.88
0.74
0.71
0.69
Notes: 1) Singapore, Vietnam, Thailand, Indonesia.
2) Standard errors in parentheses. Significance levels: *** p<0.01, ** p<0.05, * p<0.1. IPD is lagged by one
year.
3) The value in parentheses is the robust standard error (clustering at the pair-country level)
Source: Calculated by author based on data from ASEANstat (2026) and EuroStat (2026).
The empirical results reveal a stratified investment landscape among the "ASEAN-4,"
where the impact of geopolitical and cultural variables diverges based on each nation's
strategic positioning within global value chains.
Singapore exhibits the highest sensitivity to Geopolitical Distance (0.512) and the
strongest Linguistic Premium (1.104). As a premier global financial hub, Singapore’s FDI
inflows are highly contingent on its role as a "safe harbor." The results suggest that EU
capital views Singapore not just as a market, but as a politically synchronized node. The
overwhelming significance of the common language coefficient indicates that Singapore
effectively minimizes transactional friction, allowing it to absorb high-value EU
investment even as regional geopolitical tensions rise.
Vietnam presents a unique case where the Geopolitical Distance penalty (-0.315*) is
significant but moderated by institutional frameworks. Despite being a non-democratic
state with distinct political values, Vietnam has successfully mitigated geopolitical friction
through proactive institutional alignment, most notably the EU-Vietnam Free Trade
Agreement (EVFTA). The significant but lower cultural coefficient (0.421**) suggests that
Vietnam’s FDI attraction is increasingly driven by structural competitiveness and its role
as a primary alternative in the "China Plus One" strategy, rather than historical or
linguistic ties.
Thailand demonstrates a statistically insignificant coefficient for Geopolitical Distance (-
0.089) and an omitted or weak result for Common Language. Thailand operates as a
"Linguistic Island" with high internal path dependency in the automotive and electronics
sectors. The results imply that EU FDI in Thailand is governed by agglomeration
JANUS.NET, e-journal of International Relations
e-ISSN: 1647-7251
VOL. 17 Nº. 1, TD 3
Thematic Dossier – Geopolitics of Anxiety: Ideology, Identity, and (Un)Bordering in
Contemporary Europe and Asia
September 2026, pp. 116-131
The Impact of Geopolitical Distance on Foreign Direct Investment:
Evidence from Eu-Asean Relations
Yoomi Kim
129
economies and established industrial clusters. Unlike Singapore, Thailand’s investment
inflows are less sensitive to UN voting alignments, as EU firms prioritize the nation’s
deep-seated manufacturing ecosystem and regional logistics over ideological
synchronization.
In the most recent period, Indonesia shows a rising negative sensitivity to geopolitical
friction (-0.218 in sub-period analysis). Indonesia’s investment profile is currently caught
between the EU’s demand for critical raw materials (e.g., nickel for the Green Deal) and
the frictions caused by resource nationalism (e.g., export bans). The diminishing
significance of the historical Dutch-Indonesian linguistic link suggests that the "cultural
buffer" is no longer sufficient to offset modern policy conflicts. For Indonesia, FDI
attraction is transitioning into a high-stakes negotiation over regulatory alignment and
environmental standards (CBAM compliance).
While Geopolitical Distance acts as a significant deterrent to FDI region-wide, countries
with deep-seated linguistic and cultural endowments—notably Singapore, the Philippines,
and Malaysia—possess a 'cultural buffer' that sustains capital inflows even during periods
of political realignment. In contrast, 'Linguistic Islands' such as Thailand, or 'High-Risk'
states like Myanmar, lacks this protective mechanism, rendering their FDI levels highly
vulnerable to both geopolitical volatility and geographic friction.
Conclusion
This study provides a comprehensive empirical assessment of the evolving determinants
of EU-ASEAN Foreign Direct Investment (FDI) inflows between 2013 and 2025. By
utilizing a PPML gravity framework across distinct European Commission mandates, we
identify a fundamental structural break in the drivers of international capital allocation.
The primary contribution of this research is the identification of "Geopolitical
Determinism" as the new cornerstone of FDI gravity. Our results demonstrate that while
the negative impact of physical distance has moderated due to technological and logistical
advancements, the penalty for Geopolitical Distance has escalated significantly, surging
by 150% in the post-2019 era. Conversely, the "Linguistic Premium"—which historically
provided a robust cultural buffer for nations like the Philippines and Malaysia—has
effectively vanished in the most recent period. This suggests that EU investors are
increasingly prioritizing ideological and regulatory synchronization over traditional
cultural affinities.
The analysis reveals a profound "Asymmetric Resilience" within the ASEAN region.
Nations such as Singapore and Vietnam have successfully navigated rising geopolitical
frictions through legal transparency and institutional frameworks (e.g., the EVFTA).
Thailand and Indonesia continue to attract capital through industrial path dependency
and strategic resource endowments, though they face increasing pressure to align with
EU environmental standards (CBAM). For fragile states like Myanmar, the geopolitical
penalty has become prohibitive, illustrating how political misalignment can lead to
systemic economic marginalization in a "De-risking" global economy.
JANUS.NET, e-journal of International Relations
e-ISSN: 1647-7251
VOL. 17 Nº. 1, TD 3
Thematic Dossier – Geopolitics of Anxiety: Ideology, Identity, and (Un)Bordering in
Contemporary Europe and Asia
September 2026, pp. 116-131
The Impact of Geopolitical Distance on Foreign Direct Investment:
Evidence from Eu-Asean Relations
Yoomi Kim
130
From a theoretical perspective, our findings challenge the traditional dominance of socio-
cultural variables in gravity models, proposing that "Geopolitical Friction" is now the
primary arbiter of transaction costs. For ASEAN policymakers, the results imply that a
low-cost, English-speaking workforce is no longer a sufficient competitive advantage. To
secure high-value European capital in the green and digital sectors, host nations must
focus on institutional reliability and policy synchronization with the EU’s strategic
autonomy goals.
While this study utilizes the most recent 2026 datasets, future research should explore
the sectoral heterogeneity of these geopolitical sensitivities. Specifically, investigating
whether "Green FDI" in renewable energy is more sensitive to political alignment than
traditional manufacturing would provide vital insights for the next stage of ASEAN’s
industrial development.
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