6. Conclusion

The financial development, FDI, CPI and real GDP per capita is cointegrated by considering cross-sectional dependence. The relationship between the financial development and FDI in ASEAN-5 countries is found nonlinear of U-shape over the period from 1980 to 2017. Based on the findings from the quadratic model, financial development contributed towards promoting FDI after surpassed the threshold level at 70% of GDP or median score. It is important to understand how the financial development affects FDI. The results demonstrated that there exists crosssectional dependence among ASEAN-5 countries which this supports the argument of geographic influence on financial integration as well as FDI inflows. Economic integration has a direct effect on internationalization by reducing transaction costs and partial information costs [30].

Nonlinear Effect of Financial Development and Foreign Direct Investment in Integration… DOI: http://dx.doi.org/10.5772/intechopen.86104

Financial integration among the ASEAN-5 countries strengthened financial development as well as ease transaction activities among the regional players [31]. The integration in the AEC Blueprint 2015 towards strengthening the financial institutions, enhance commitment in implementation and in monitoring and evaluation of finance. Since all ASEAN-5 countries are complying the financial accounting standards of IFRS (including Indonesia who committed to comply the IFRS), the quality of financial information is needed in order to monitor and evaluate the financial position. In addition, ASEAN seeks to achieve a wellintegrated and smoothly functioning ASEAN region financial system, as well as the IFRS accounting standard, that characterized by more liberalized capital account regime and inter-linked capital markets. Strengthening financial integration as well as financial market infrastructure with the quality of financial reporting are therefore aimed at facilitating intra-ASEAN trade and investment by increasing the role of ASEAN indigenous banks. It also augmenting the integrated insurance and capital markets that leading to safe, cost-efficient and more connected regional economy. The attraction of FDI inflows is an important goal of the AEC and largely conditional to the success of the ASEAN-5 economies efforts.
