Much of the theoretical and empirical work on foreign investment focused closely on supply motivations. Where conditions in the host country were included in the analysis, they tended to be interpreted from the viewpoint of the investor country, in terms of “pull” factors or even more generally as the “investment climate”. In some such writings, there was also an implicit assumption that foreign investment was desirable for the host developing country, and the analysis was directed towards advising prospective host countries how best to attract foreign investors. These studies analysed conditions in host countries in categories like political stability, incentive policies, availability of necessary manpower, infrastructure, and support industries. These were factors which made the host country attractive to the foreign investor. They were quite different from factors which determined the demand for foreign investment from the host country's side.

Similarly, the appearance of “new forms of investment” by Japanese firms has tended to be analysed wholly from the supply angle. According to this approach, Japanese firms undertook these “new forms” in order to maximize returns on their accumulated specific advantages. There has been little attempt to analyse the extent to which the appearance of new forms can be linked to the desire of governments and domestic capital in host countries to gain access to technology and other advantages possessed by Japanese firms without ceding equity share or management control.

This chapter analyses the demand for foreign capital in the ASEAN states. The first section sets out a general framework for discussing the demand for foreign capital. This is followed by an overview of factors affecting the demand for foreign capital over the period from the 1950s to the early 1980s. The third section examines the impact of the recession of the early 1980s on government, and the fourth section summarizes the resulting changes in official regulations concerning foreign investment. The final section traces changes in the attitudes of domestic capital towards foreign capital inflow.