OeNB Report 2025/6: (De)globalization monitor: Should I stay or should I go? India, ASEAN and the fragmentation of FDI

Christian Alexander Belabed, Julian Mayrhuber ¹

The debate about deglobalization and the fragmentation of the global economy has garnered increasing attention in both academic and policy circles in recent years. International institutions have covered the topic in almost all recent flagship reports (e.g. IMF 2023a, 2023b, 2024; OECD 2024a, 2024b; UNCTAD 2023, 2024). Their implications for monetary policy and central banks have been extensively explored in recent research, including ECB (2021, 2024). In brief, if globalization is thought to affect the transmission of monetary policy, as ECB (2021) suggested, the opposite should not be ruled out either. While the debate on whether deglobalization is occurring remains unresolved, there is clear descriptive evidence that key indicators, such as cross-border investment, the subject of this report, have lost momentum since the financial crisis and have not fully recovered during subsequent phases of globalization (Abeliansky et al., 2024a).

Recent studies have examined various dimensions of geoeconomic fragmentation. Aiyar and Ohnsorge (2024) analyze its potential effects on capital flows, trade, migration and the global financial system while also exploring strategies to sustain the economic benefits of globalization within a multilateral framework. Gopinath et al. (2024) argue that geopolitical de-alignment has adversely impacted cross-border trade and investment following Russia’s invasion of Ukraine. Across all their specifications, FDI flows between blocs have declined significantly relative to FDI flows within blocs since Russia’s invasion of Ukraine in 2022. Nonaligned “connector” countries play a growing role by bridging rival blocs, which has brought resilience to global trade but may increase inefficiencies and new vulnerabilities (see also Alfaro and Chor, 2023; Dang et al., 2023; Freund et al., 2023). Drawing historical parallels to the Cold War era, their findings suggest that similar geopolitical tensions could have a much greater impact on trade. ² Aiyar and Ohnsorge (2024) introduce the concept of “connector countries” – nations that expand their trade and investment links with opposing geopolitical blocs to maximize economic benefits. Their analysis identifies Mexico as a vertical connector, attracting foreign direct investment (FDI) from China to manufacture goods for export to the United States. In contrast, Vietnam functions as a horizontal connector due to its diversified export partnerships. These findings highlight that different strategic approaches yield distinct outcomes concerning FDI relationships and exposure to geopolitical and geoeconomic shifts.

Catalán et al. (2024) employ a gravity model to estimate the effects of geopolitical distance, as measured by the alignment of voting behavior in the UN General Assembly, on investment fund allocations. Their findings indicate that greater geopolitical distance is associated with smaller allocations of investment funds, with reductions of up to 60%. Geopolitical distance also leads to investment diversion, where countries geopolitically distant from major powers attract investments from third-party nations. However, the extent of FDI fragmentation remains contested. Tan (2024) argues that geopolitical de-alignment has not resulted in widespread FDI fragmentation. Instead, according to the author, fragmentation is largely restricted to a few strategic industries and driven by a limited set of discretionary policies, primarily affecting US FDI outflows. Consequently, this does not necessarily signal a broad-based disruption of investment links between non-allied countries or blocs. Abeliansky et al. (2024b) further contribute to the discussion by demonstrating that both FDI and portfolio investment (PI) are increasingly influenced by geopolitical distance. Their findings suggest that this effect has become more pronounced in recent years, particularly in emerging markets. These insights collectively underscore the role of geopolitical factors in shaping investment patterns.

This report on India and ASEAN ³ countries is the first in the FDI part of our project that (descriptively) analyzes individual countries and regions. Recent literature has covered ASEAN countries to some extent, but there has been little analysis of India and potential fragmentation of its FDI relationships. Baek et al. (2023), for instance, argue that while ASEAN-5 ⁴ has made substantial progress in trade integration, financial integration lags behind due to regulatory and institutional constraints. They estimate that deeper financial integration would generate significant output gains and bolster resilience to external shocks. While this report does not analyze the effects of fragmentation, it highlights the fact that ASEAN countries may be vulnerable to fragmentation since some investments might never be made if geopolitical tensions translate into cross-border investment fragmentation. Hudecz et al. (2024) analyze the implications of geoeconomic fragmentation for the ASEAN+3 region ⁵ , focusing on trade and capital flows. The authors argue that while ASEAN+3 trade volumes have remained stable, trade patterns have shifted in response to geopolitical tensions, with the region benefiting from its role as a “connector” between China and the United States. The analysis also highlights increasing financial fragmentation, as capital flows become more concentrated within geopolitical blocs. The authors emphasize the need for regional financing arrangements to mitigate risks associated with global economic fragmentation.

In the following two paragraphs, we will describe in more detail our motivation to focus our analysis on India and ASEAN. We chose India due to its status as an emerging economy, which may be particularly vulnerable to shifts in cross-border investment patterns driven by geopolitical fragmentation. Changes in global economic alliances may affect strategic sectors such as manufacturing, where supply chain realignments and geopolitical considerations play a crucial role. India’s positioning in the global economy, including its alignment choices with major economic blocs, will be a key determinant of the extent to which it can attract or retain foreign capital. These dynamics have significant implications for India’s long-term economic growth, as fluctuations in FDI can influence industrial development, technology diffusion and job creation. Furthermore, India is an interesting case for analyses of geopolitical fragmentation due to its balancing act between major geopolitical powers, such as the US, China and Russia. This also makes the country a focal point for studying the strategic realignment of investment flows. Moreover, India’s participation in multilateral initiatives like the Indo-Pacific Economic Framework for Prosperity and its trade relationships with both Western economies and Global South partners provide additional layers of complexity to its economic positioning in a fragmenting global landscape.

Additionally, we chose ASEAN countries for the following reasons: ASEAN’s efforts to deepen market integration and solidify its role as a resilient hub within global production networks may face significant challenges amid rising geopolitical fragmentation. While the region has benefited from past gains in trade liberalization and foreign investment, these very successes also render it vulnerable to disruptions stemming from economic decoupling and heightened geopolitical tensions. However, the bloc’s economic heterogeneity means that the costs and benefits of fragmentation will not be evenly distributed, as individual member states vary in their exposure to external shocks, industrial composition and policy responses. As a result, ASEAN’s ability to maintain cohesion and adapt to shifting global dynamics will be crucial in determining the long-term impact of geopolitical fragmentation on the region’s economic trajectory. Finally, ASEAN is a compelling case for studying geopolitical fragmentation due to its pivotal role in global supply chains, particularly in electronics and manufacturing. The region’s strategic position between major economic powers adds complexity to its alignment strategies.

In this report, we intend to answer the following question: To what extent does geopolitical fragmentation influence FDI patterns in India and ASEAN? We examine geopolitical alignment trends, compare FDI diversification across regions and look at FDI reallocation with a focus on India and ASEAN. Based on our descriptive analysis, the key results of this report are: The geopolitical landscape – as measured by the Ideal Point Distance (IPD), a common measure of alignment of voting behavior in the United Nations General Assembly – suggests a growing alignment between India and ASEAN with China, while India maintains a relative distance from the United States. However, alternative indicators are necessary to validate this result. Concurrently, the geographic concentration of India’s inward and outward FDI has declined over time, indicating greater diversification among source countries. India’s principal investors remain the euro area and the United States, whereas ASEAN’s investment profile is dominated by offshore financial centers (OFCs) and the United States, with Singapore serving as a critical financial hub. FDI reallocation patterns further underscore ASEAN’s ability to attract investment from a broad spectrum of regions, including Latin America and the Caribbean (LAC) as well as China. In contrast, while India has been relatively less successful in this regard, it has still secured substantial FDI inflows from LAC, the euro area and ASEAN member states, reflecting evolving regional integration dynamics.

The remainder of this report is structured as follows: Section 1 introduces four phases of globalization and puts global FDI flows in the context of these phases. Section 2 presents data on the geopolitical alignment of India and ASEAN based on a widely cited measure derived from voting in the United Nations General Assembly (UNGA). Section 3 then delves into India’s and ASEAN’s bilateral FDI relationships, considering information on geopolitical alignment from section 2. Section 4 summarizes and concludes.

1 The one with the rise, the fall and the fluctuation in FDI

Based on a non-exhaustive review of the literature, we divide the period from 2001 to 2024 into four distinct phases of globalization (see Abeliansky et al., 2024a for more details):

Chart 1 illustrates global FDI flows, measured as a percentage of world GDP, between 2001 and 2023. The data are divided into four distinct phases of globalization. During phase 1, FDI flows, which are a cornerstone of global economic integration, grew significantly. This phase culminated in a peak in FDI flows, reaching more than 3% of world GDP before the global financial crisis. Phase 2, marked by the impact of the financial crisis, is characterized by a significant decline in FDI flows. The remainder of phase 2 saw a stagnation of FDI flows as a percentage of GDP, highlighting a phase of reduced appetite for cross-border investment, most likely driven by balance sheet repair pressure and subdued global demand. The start of phase 3 saw a period of moderate FDI growth, but overall levels did not return to the pre-crisis peak. This phase aligns with a more fragmented globalization trend, where FDI flows were more subdued and marked by regional dynamics rather than broad-based global expansion as during phase 1. In phase 4, the chart shows a further decline in global FDI flows, exacerbated by events such as the COVID-19 pandemic, Russia’s war in Ukraine and increasing geopolitical tensions. This phase underscores the challenges of globalization in the face of rising protectionism, economic uncertainty and supply chain disruptions.

Chart 1

Chart 2

Chart 2 presents the Herfindahl-Hirschmann Index (HHI) for global bilateral FDI over the period from 2001 to 2023, weighted by the source countries’ respective shares in global FDI. The HHI is a common measure of concentration, with higher values indicating a greater concentration of investment flows among a smaller number of source and recipient countries. The chart is again divided into four distinct phases, reflecting shifts in global capital flow concentration over time. During phase 1, FDI concentration exhibited a sharp decline, starting at an HHI value above 0.20 and falling to around 0.14 by the end of the phase. This period was characterized by an increasingly diversified distribution of FDI associated with a phase of increasing globalization. Phase 2 saw a pivotal shift in global capital flows that coincided with the global financial crisis. The concentration of FDI stabilized at historically low levels, as investment flows dispersed more broadly across economies. Phase 3 marked the beginning of a reversal in capital flow trends. FDI concentration showed an upward trend, though at a gradual pace. This phase indicates a re-concentration of global capital flows, potentially influenced by geopolitical developments, regional economic policies and shifting trade dynamics. Finally, phase 4 reveals a marked increase in FDI concentration. The overall trend indicates that, in recent years, investment flows have become less evenly distributed, which may increase risks and vulnerabilities to increasing geopolitical tensions.

2 The one with the geopolitical balancing act

The Ideal Point Distance (IPD), as proposed by Bailey et al. (2017) and Voeten (2021), represents a methodological improvement over the traditional S-Score by Signorino and Ritter (1999) in estimating government preferences from voting behavior. A key limitation of the S-Score is its susceptibility to distortions introduced by agenda setting, i.e. the topics selected for voting can create artificial fluctuations in measured similarity between states. The IPD corrects for such distortions by employing spatial models that estimate “vote cut points” to differentiate between changes in observed voting patterns stemming from agenda-driven fluctuations and genuine shifts in preferences. Consequently, IPD provides a more stable and theoretically grounded measure of state preferences by reducing the impact of short-term or issue-specific deviations from broader alignment trends. ⁶

Chart 3 shows the unilateral ideal points for selected countries and regions, with each country’s position estimated with respect to the “US-led liberal order” (Bailey et al., 2017). The distance (IPD) is then calculated for every dyad from unilateral ideal points, e.g. between China and the US. The two ends of the geopolitical spectrum are defined by the US (throughout the time frame) and by Russia (1973–1990) and China (1991 onward). Russia’s move to a more middle-ground position after the fall of the Soviet Union in the 1990s is immediately obvious. In addition, China’s opening in the 1970s and 1980s led to a modest but visible movement toward the center, albeit only for a short period. One of the key features of the IPD is that it moves significantly only in the event of major changes in a country’s policy preferences. This usually occurs after major political events such as the dissolution of the Soviet Union or after the 1979 Islamic Revolution in Iran. In contrast, absent such transformative political shifts, IPD measurements tend to exhibit relatively low variation over time, as states maintain stable foreign policy preferences. Turning to ASEAN and India, interestingly, the IPD positioning of both regions suggests closer alignment with China than with Western states. That is despite the institutionalized security cooperation between the United States and India that far surpasses comparable developments in China-India relations (see the annex for more details on security cooperation).

Chart 3

Charts 4 and 5 display India’s and ASEAN’s geopolitical positioning vis-à-vis China and the US, with chart 4 showing the IPD for India and chart 5 showing the IPD for ASEAN. Over the analyzed period, India consistently had a higher IPD to the United States than to China, reflecting historically divergent foreign policy stances perhaps due to a common Global South agenda. Between the 1970s and the early 2000s, India maintained significant geopolitical distance from the United States, with the IPD peaking around the late 1990s at nearly 5, indicating considerable divergence. However, from the early 2000s onward, this distance began to narrow, suggesting a gradual alignment driven by improving bilateral relations, particularly in the areas of defense cooperation, trade and shared strategic interests. ⁷ By contrast, India’s alignment with China remained relatively stable and much closer over the same period, with the IPD consistently below 1. Despite occasional fluctuations – such as brief increases in the mid-1980s and early 2020s – the geopolitical distance between India and China has remained low, indicating shared positions on several multilateral issues, likely influenced by their common status as major developing economies. However, recent increases in the IPD suggest a subtle but growing divergence, possibly reflecting rising geopolitical tensions and strategic competition in the Indo-Pacific region.

Turning to ASEAN countries, chart 5 displays the geopolitical alignment of ASEAN member states relative to the United States and China. ASEAN has a significantly higher IPD to the United States than to China, highlighting a historical divergence from US foreign policy positions. The IPD to the US began at around 2 in the early 1970s, rising steadily to peak above 4 in the late 1990s, suggesting a period of growing geopolitical distance during the Cold War and its aftermath. However, since the early 2000s, this distance has moderately declined, though it remains substantial. In contrast, ASEAN’s alignment with China remained relatively stable and close throughout the period, with IPD values fluctuating around a range between 0.5 and 1, indicating sustained geopolitical proximity. Minor fluctuations in the IPD to China, particularly during the late 2010s and early 2020s, suggest occasional divergences. Overall, the chart illustrates ASEAN’s geopolitical closeness to China, contrasted with a historically wider gap with the United States – though recent trends suggest a modest convergence toward the US, possibly reflecting shifts in regional security dynamics and economic partnerships in the Indo-Pacific.

Chart 4

Chart 5

Using the Ideal Point Distance (IPD), this section explores the geopolitical alignments of India and ASEAN relative to major global powers, particularly China and the United States. It reveals how historical and strategic considerations shape these countries’ alignments, highlighting a general trend of closer alignment with China, though subtle shifts suggest emerging divergences in recent years. These geopolitical dynamics may have tangible implications for economic relationships, which we explore next by examining bilateral FDI flows and investment concentration patterns across India and ASEAN.

3 The one with the concentration and reallocation of capital

We first look at the concentration of inward and outward FDI stocks for India and ASEAN. Starting with India, chart 6 shows the evolution of the Herfindahl-Hirschmann Index (HHI) for India’s inward and outward FDI stocks over the period from 2001 to 2023. During phase 1 (2001–2008), India’s inward FDI was highly concentrated, with an HHI above 0.50 at the beginning of the period. This suggests that a small group of countries accounted for most of the FDI in India. However, this concentration declined sharply over the phase and into phase 2, indicating that FDI inflows became more diversified over time. This fits very well with our discussion of phase 1 of globalization. By contrast, outward FDI from India started at a much lower level of concentration, around 0.22, and therefore showed a much more gradual decline, but still reflecting an increasing diversification of India’s overseas investment destinations. In phase 2, inward FDI concentration continued to decline, reaching parity with outward FDI concentration around 2010 and stabilizing for most of the remainder of phase 2.

Outward FDI, on the other hand, remained relatively stable at a slightly lower concentration level. Phases 3 and 4 marked a period of relative stability, with both inward and outward FDI concentration maintaining similar levels. A slight divergence between inward and outward FDI concentration emerged at the end of phase 4 in 2023 with outward FDI becoming slightly more concentrated. Meanwhile, inward FDI concentration remained low and slightly declined, indicating continued diversification of foreign investment into India. The stability in inward FDI concentration suggests that India has maintained its attractiveness to a broad range of international investors. Overall, the trends in this chart highlight India’s transformation into a more diversified player in global investment networks since the early 2000s. The sharp decline in inward FDI concentration over the past two decades implies a broader and more resilient investment base, potentially reducing vulnerability to external shocks. Meanwhile, the relative stability of outward FDI concentration suggests that Indian multinational enterprises have maintained a strategic and diversified approach to foreign investment.

Chart 6

Chart 7

Chart 7 illustrates the evolution of the HHI for inward and outward FDI in the ASEAN region. During phase 1, inward FDI in the ASEAN region was initially quite concentrated, with the HHI starting at 0.27. This suggests that during this early period, a small group of countries accounted for most FDI inflows into ASEAN economies. However, over the course of this phase, there was a marked decline in inward FDI concentration, reflecting a diversification of investment sources. Outward FDI from ASEAN countries, by contrast, started at a lower HHI value (0.09) and remained relatively stable thereafter, indicating a broader distribution of ASEAN investments across multiple destinations. In phase 2, the concentration of outward FDI experienced an initial uptick in 2009 and a subsequent stagnation. Inward FDI concentration moved sideways throughout the phase, indicating a stable diversification of source countries. Phase 3 reflects a period of stabilization for both inward and outward FDI. The concentration of inward FDI remained relatively flat, fluctuating around 0.12, suggesting that inflows of foreign investments remained diversified. Outward FDI concentration mirrored this trend, hovering around similar levels, which implies that ASEAN countries maintained a balanced investment strategy without significant shifts in focus toward specific markets. In phase 4, both inward and outward FDI concentration indices converged at low levels. Inward FDI concentration stabilized slightly below 0.10. Outward FDI concentration followed a similar pattern, with a slight increase toward the end of the period.

Overall, the chart highlights a clear trend of decreasing concentration in ASEAN’s FDI flows over the last two decades, particularly for inward investment. This reflects the region’s growing attractiveness to a broader range of foreign investors, likely driven by increased economic integration, trade liberalization and dynamic market opportunities across member states. These trends underscore ASEAN’s evolving role as both a significant recipient and provider of global capital flows, reinforcing its importance in the global economy. Compared to India, the region experienced similar broader trends of source and destination country diversification, reflecting both India’s and ASEAN’s increased integration into global value chains.

The logical next question is who invests in India and ASEAN countries? Chart 8 presents data on the largest foreign investors in India, measured as a percentage of the total inward FDI stock, which amounted to USD 740 billion in 2023, according to CDIS data. The figures indicate that the euro area accounts for the largest share of India’s inward FDI at 18.6%, reflecting the significant role of European investors in the Indian economy. The United States follows as the second-largest investor, contributing 16.5% of the total FDI stock. OFCs also represent a considerable portion at 15.8%. Other major investors include ASEAN at 14%, the United Kingdom at 11.8% and Japan at 8.8%, demonstrating a strong presence of both Western economies and key Asian partners. Switzerland also contributes a notable 6.6% of FDI. Other advanced economies, excluding those specifically listed, collectively account for 2.4%, while South Korea’s share stands at 1.7%. Among emerging market and developing economies (EMDEs), Iran (1.5%), the United Arab Emirates (1%), and other EMDEs (0.9%) play a relatively smaller role in India’s inward investment stock. Hong Kong’s share amounts to a mere 0.4% of the total inward FDI stock in India. The chart underscores the dominance of Western, advanced economies in India’s FDI landscape, highlighting the euro area and the United States as primary contributors, followed by significant regional players such as ASEAN and Japan.

Chart 8

Chart 9

Chart 9 illustrates the distribution of ASEAN’s stock of inward FDI from extra-ASEAN countries, highlighting the relative contributions of major investing regions and countries. Our dataset distinguishes between Singapore and the rest of ASEAN, reflecting the city-state’s pivotal role as a conduit for foreign investments in the region. OFCs are the largest sources of foreign investment in ASEAN, accounting for 22.7% of the total FDI stock, followed closely by the United States at 22.5%. This underscores the crucial role that financial hubs and the US play in ASEAN’s investment landscape. The euro area is another significant investor, representing 13.2% of total FDI stock, demonstrating strong economic ties between ASEAN and European countries. Japan follows with a 10.7% share, reflecting its longstanding investment presence in the region. Other notable contributors include Hong Kong (5.3%), China (5.1%) and the United Kingdom (5%), indicating the diverse geographic distribution of investment sources. Switzerland accounts for 2.9%, with similar proportions contributed by other EMDEs and Canada. South Korea, advanced economies outside the explicitly mentioned regions, and Taiwan contribute smaller but still relevant shares, ranging between 2.4% and 2.8%. The data suggest that ASEAN remains a highly attractive investment destination for advanced economies, with financial hubs and developed nations playing a dominant role in capital inflows. In addition, while ASEAN is an important direct investor in India, the region does not attract significant direct investment from India. These FDI links also emphasize the importance of global financial networks and strategic economic partnerships in shaping ASEAN’s foreign investment structure and inclusion into global value chains.

While the previous charts give us a good first impression of the most important investment relationships for both regions, they do not convey information on the reallocation of FDI stocks. Chart 10 presents data on the reallocation of FDI between 2018 (end of phase 3) and 2023 (last data available, phase 4), measured as percentage point deviations from each source country’s aggregate change in outward FDI. For instance, the growth of China’s FDI to ASEAN between 2018 and 2023 was 70 percentage points higher than China’s global FDI growth, indicating ASEAN’s importance to China. The results indicate significant disparities in FDI reallocation, with some regions experiencing considerable relative increases in bilateral FDI allocations while others have faced declines. ASEAN is a primary beneficiary of this reallocation, with a substantial increase in FDI from nearly all source regions (last column of chart 10). Notably, Latin America and the Caribbean (LAC) saw an extraordinary relative increase in FDI directed toward ASEAN, far exceeding changes observed for any other region. While this may be due to a comparatively low FDI stock of LAC in ASEAN, it also highlights the increased role ASEAN now plays for global FDI relationships. Similarly, India recorded significant inflows from LAC, but also from the euro area, underscoring its growing importance as an investment destination. China, on the other hand, received substantial increases in investment from LAC, indicating a possible shift in capital flows from Latin American investors. The fact that China is one of the main investors in ASEAN countries is consistent with the geopolitical alignment between the two regions as shown above in Chart 5. Despite China-India alignment in UN voting, India experienced a sharp decline in FDI originating from China, possibly reflecting geopolitical tensions and strategic economic shifts. It is noteworthy that the last major clash at the border between China and India was in 2020 and may have caused a relative decline of joint investment relationships. ⁸ Whether this trend will reverse remains to be seen. The chart underscores the evolving nature of global investment flows, with ASEAN and India emerging as key recipients of FDI and ASEAN leading India in attracting FDI from all source regions.

Chart 10

4 The one that concludes

This study provides a detailed descriptive examination of FDI fragmentation in India and ASEAN within the broader framework of global FDI shifts. The analysis highlights several key insights. First, the segmentation of globalization into four distinct phases underscores the cyclical volatility of global FDI flows. The trajectory from the “goldilocks” phase of expansive globalization to the recent period of multiple crises reveals a consistent decline in global FDI as geopolitical tensions and systemic shocks intensify. This historical context is crucial for understanding the contemporary investment landscape in India and ASEAN.

Second, geopolitical alignment, measured using the Ideal Point Distance (IPD) methodology, emphasizes the strategic positioning of India and ASEAN relative to major global powers. The findings reveal a nuanced geopolitical balancing act. India, geopolitically more aligned with China, exhibits signs of moderately increasing alignment with the United States (via the Indo-Pacific strategy of the US and as a member of the “Quad”), reflecting strategic recalibrations in response to shifting global dynamics. Conversely, ASEAN maintains a closer alignment with China, though recent trends suggest a modest convergence toward the United States, reflecting evolving security and economic partnerships within the Indo-Pacific.

Third, empirical evidence, as measured by the Herfindahl-Hirschman Index (HHI), underscores a trend toward greater diversification of FDI flows in both India and ASEAN. India’s declining inward FDI concentration signals enhanced integration into global investment networks, while ASEAN’s role as a regional investment hub has been reinforced by its capacity to attract capital from a wide range of global sources. Notably, ASEAN outpaces India in capturing reallocated global FDI, reflecting its strategic position within global supply chains and its pivotal role in facilitating cross-bloc investments.

Finally, the observed patterns of FDI reallocation reveal a complex interplay between geopolitical tensions and economic pragmatism. The significant decline of Chinese FDI in India, juxtaposed with China’s growing investment presence in ASEAN, highlights how geopolitical frictions can influence capital flows beyond mere alignment metrics. The emergence of Latin America and the Caribbean (LAC) as growing investors in both regions further illustrates the shifting contours of global investment networks. We also demonstrate that ASEAN outperforms India in attracting inward FDI from across the world.

In conclusion, this study demonstrates that while geopolitical alignment plays a critical role in shaping FDI dynamics, economic diversification strategies and regional integration efforts are equally pivotal. For both India and ASEAN, the ability to attract and sustain foreign investment amid growing global fragmentation will depend on their capacity to navigate geopolitical tensions while enhancing their roles in global economic networks. Future research should incorporate alternative measures of geopolitical alignment and focus on the long-term implications of FDI fragmentation on economic resilience and regional development trajectories. It could also delve deeper in sectoral specifics such as technology-related questions surrounding the fragmentation of FDI as well as identifying risks, vulnerabilities and opportunities for India and ASEAN in a continuously fragmenting FDI landscape. Bloc-building scenarios could complement such analyses by simulating the effects of various scenarios of fragmentation on FDI in India and ASEAN.

5 References

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6 Annex: security and policy cooperation

India-US cooperation in foreign and security policy (selection)

2015: Joint Strategic Vision for the Asia-Pacific and Indian Ocean Region: Safeguards maritime security, sets the stage for enhanced cooperation in various domains and promotes accelerated infrastructure connectivity to link South, Southeast and Central Asia.

2016: Logistics Exchange Memorandum of Agreement (LEMOA): Defense agreement which allows the armed forces of both nations to use each other’s bases for refueling and resupply, enhancing operational capabilities and interoperability. India named “Major Defense Partner” the same year.

2017: Communications Compatibility and Security Agreement (COMCASA): Facilitates secure, real-time communications between the US and Indian military forces, allowing for better coordination and sharing of sensitive information.

2020: Basic Exchange and Cooperation Agreement (BECA): Enables the sharing of geospatial intelligence and enhances the operational capabilities of both countries’ armed forces, particularly in the Indo-Pacific region.

2022: Expanded Malabar Naval Exercises: Series of naval exercises which included forces from the US, India, Japan and Australia, emphasizing the importance of multilateral security cooperation in the Indo-Pacific region.

2023: Joint Statement on Comprehensive Global and Strategic Partnership: President Biden and Prime Minister Modi reaffirmed their commitment to a deeper partnership, addressing issues such as global security, economic cooperation, particularly in response to the Ukraine conflict.

India-China cooperation in foreign and security policy (selection)

2013: Border Defense Cooperation Agreement (BDCA): Guides border interactions between China and India and enhances cooperation between border defense forces along the Line of Actual Control (LAC). India and China agree to jointly combat smuggling, hold periodic meetings between military officials.

2017: India joins the Shanghai Cooperation Organization (SCO) as a full member. Strengthens relations with Central Asia. Combats terrorism and extremism and access to relevant intelligence.

2018: Modi and Xi meet for an informal summit in Wuhan, China . They agree to improve communication between their militaries.

2021 : Despite the Galwan Valley clash, India and China hold their 22nd round of border talks . They agree to continue dialogue to achieve a “mutually acceptable resolution” of the remaining issues along the LAC.

2023 : India and China hold the 14th round of Corps Commander Level Meeting . They agree to maintain security and stability in the Western Sector.

2024 : India and China agree on a pact on military patrols after a deadly clash in 2020 in a contested area in the Himalayas. The pact is also supposed to lead to disengagement at the LAC.

ASEAN-US cooperation in foreign and security policy (selection)

2015: US-ASEAN Strategic Partnership: Previous relationship elevated to a strategic partnership, focusing on mutual goals of peace, prosperity and maritime security in the Asia-Pacific region. Plan of Action (2016–2020) adopted, emphasizing economic integration, maritime cooperation.

2016: Sunnylands Summit : The United States hosted a summit with ASEAN leaders focusing on enhancing cooperation in various areas, including security and economic ties, deepening US-ASEAN maritime cooperation. China’s assertiveness in South China Sea addressed. Principles laid down in the “Sunnylands Declaration” should guide future cooperation.

2018: ASEAN-US Maritime Security Cooperation : Cooperation framework aimed at ensuring free and secure maritime domain in the Indo-Pacific. The US continued to enhance maritime security cooperation through various workshops and initiatives, focusing on shared maritime awareness and counter-piracy efforts. ASEAN-US Maritime Exercise (AUMX) first held in 2019. Cooperation afloat readiness and training (CARAT) is a series of bilateral military exercising involving the US Pacific Fleet and several ASEAN member nations.

2020: US-ASEAN Defense Forum : US hosts ASEAN Defense Ministers’ Meeting-Plus (ADMM-Plus), focusing on regional security issues, including counterterrorism and maritime security. The forum facilitates high-level dialogue, joint exercises and collaborative initiatives.

2022: Comprehensive Strategic Partnership : Elevates the US-ASEAN strategic partnership (2015) to strengthen political security cooperation, emphasizing peace, stability and security. Maritime security including peaceful resolution of disputes. Economic integration, e.g. investment in human capital development.

2023: Ongoing Cooperation on Security Issues : The US and ASEAN continued to engage in dialogues and collaborative efforts to address regional security challenges, including maritime security and counter-terrorism initiatives.

ASEAN-China cooperation in foreign and security policy (selection)

2015: China-ASEAN Free Trade Area (ACFTA) Upgrade : Discussions to upgrade the existing free trade agreement to enhance economic cooperation and address emerging challenges in trade.

2016: China-ASEAN Joint Statement on the South China Sea : Reaffirmation of commitment to resolving disputes through dialogue and negotiation, emphasizing the importance of peace and stability in the region. Aims to maintain and promote peace, security, stability and freedom of navigation in the South China Sea.

2017: Framework for the Code of Conduct (COC) in the South China Sea : ASEAN and China agreed to establish a framework aimed at managing tensions and promoting stability in the South China Sea.

2021: China-ASEAN Comprehensive Strategic Partnership : The partnership was elevated to a comprehensive strategic level, focusing on cooperation in various areas, including security and trade.

2022: ASEAN-China Plan of Action (2021–2025) : Enhances and elevates strategic partnership, guides cooperation over the next five years, focusing on economic recovery and regional security. Full and effective implementation of COC and other agreements on South China Sea.

2023: Guidelines for the Code of Conduct in the South China Sea : ASEAN and China agreed on guidelines to accelerate negotiations for the COC, emphasizing need for compliance with international law, promoting dialogue and collaboration to ensure peace and stability in the region.