Foreign direct investment (FDI) has played a significant role in the growth and dynamism of the member economies of the Asia-Pacific Economic Co-operation (APEC). Most APEC economies are both recipients and sources of FDI. Up to the late 1980s and early 1990s, a number of these economies pursued highly restrictive policies towards FDI for fear that multinational companies would control important activities in their domestic economies (Bora and Graham 1995). However, the development experience of the newly industrializing economies (NIEs) of Asia in the late 1980s has fundamentally changed this view. The capital as well as the technology, management skills, and other expertise brought in by the multinational companies (mostly from Japan and the United States) have played a major role in the unprecedented growth experienced by these economies that has become the envy of other developing economies.

As a consequence, a number of economies began reorienting their FDI regimes towards greater openness and less regulation. This eventually led to the surge of investments into the region during the last decade. At the same time, however, this flow of FDI facilitated industrial adjustment in the source economies as it enabled them to relocate their labourintensive industries in Asia, where labour is relatively cheap, as part of their global strategy to remain competitive. This was also true of the experience of the NIEs when they themselves later became sources of capital, targetting labour-intensive industries in ASEAN and China (ESCAP 1998). Such a development strategy ultimately increased economic integration among many APEC economies where the production networks of multinational companies located in the region are now interlinked in technologically advanced industries.

The region's dependence on FDI as a source of capital has not diminished and the role of the region in global FDI flows continues to be strong. In light of the general recognition of the importance of FDI in the economic development of the region, an investment environment that facilitates the smooth flow of FDI becomes crucial. To this end, APEC is aiming for free and open investment no later than 2010 for its developed member economies and by 2020 for its developing member economies.