Investment Facilitation and Promotion in Cambodia: Impact of Provincial-level Characteristics on Multinational Activities

Shandre Mugan Thangavelu, Leng Soklong, Vutha Hing and Ratha Kong
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Shandre Mugan Thangavelu: Jeffrey Cheah Institute for Southeast Asia, Sunway University and Institute for International University, University of Adelaide
Leng Soklong: Ministry of Economy and Finance, Cambodia
Vutha Hing: Institute for International Trade, University of Adelaide
Ratha Kong: Institute for International Trade, University of Adelaide

No DP-2023-08, Working Papers from Economic Research Institute for ASEAN and East Asia (ERIA)

Abstract: This paper examines the foreign direct investment policy of Cambodia in terms of investment promotion and facilitation. The study examines the key factors affecting the location of foreign firms (with more than 10% ownership) in Cambodia accounting for key provincial-level (18 provinces) characteristics, such as infrastructure (roads), population density (young population), special economic zones (SEZs), the number of establishments, poverty rate, rainfall, water supply, electricity supply, sharing of an international border, sharing a coastal area, and consumption per capita. The paper uses administrative data from the Council for Development of Cambodia, which manages foreign direct investment and the special economic zones in Cambodia. The study consists of nearly 500 foreign firms that have been approved to invest in Cambodia from 2017 to 2020. The results indicate a positive impact of road infrastructure (national and provincial roads) on foreign investment activities as it improves the movement of people and goods, reduces transaction costs, increases market access, and increases the service linkages within the domestic economy. At the provincial level, we observe that electricity supply, rainfall (water supply), land area, and a young working population have a positive impact on the investment decisions of foreign investors in the provinces of Cambodia. We also observe a negative impact of SEZs on foreign investment in Cambodia. The results indicate an urgent need for structural transformation of the Cambodian economy in terms of investment in soft and hard infrastructure and the development of the critical skills and human capital of the labour force. It is important to improve and upgrade the SEZs with key technologies and innovation to be more competitive in attracting foreign investment activities, which will be critical for increasing the competitiveness of Cambodian industries in global value chain activities.

Keywords: Cambodia; Investment Facilitation (search for similar items in EconPapers)
JEL-codes: F2 F23 O11 (search for similar items in EconPapers)
Date: 2023-08-03
New Economics Papers: this item is included in nep-int and nep-sea
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