ABSTRACT
The hypothesis tested envisages that economic aid stimulates foreign direct investment (FDI) of the donor country into the aid-receiving country. The analysis of the regional distribution of aid of the several donor countries shows that Association of Southeast Asian Nations (ASEAN) has enjoyed a very high regional priority in Japanese economic aid. The attractiveness of ASEAN markets based on low wage costs, availability of energy and raw materials, high growth of domestic demand, openness of the economy, rational exchange rate policies, political and economic stability, etc., has promised high returns to all foreign investors irrespective of their country of origin. The Japanese incentives may have been more effective in promoting FDI than those of West Germany, the UK and the United States. In the field of natural resources Japan is more dependent on outside resources than any other industrialized country.
