In the modern economy, international capital flows become more crucial in driving an economy, especially in the developing countries. Mach research focuses on the effect of financial capital flows on economic growth and/or development. Several researches have studied the linkage between economic environment and international capital flows. This study contributes to the literature on the topic by providing an alternative analysis that focuses on the effects of transaction cost (innovation and risk) and legal environment on investment choices of emerging Asian economies. The econometric approaches in both regular perspective of parametric models such as linear regression and alternative technique (Bayesian CART model) are used to test the hypothesis that transaction cost and legal structure have influenced investment alternatives.;The findings suggest that legal origins matter. For example, different legal families give different levels of protection to minority investors. Common law offers the most protection to minority shareholders, followed by French civil law, and then by German civil law. Some of our evidence supports the findings in the recent research. For example, common law provides the strongest protection to minority investors. However, some our findings are not supported by recent research. For example, the ordering of French legal tradition has been changed. Regarding creditor rights in the Asian countries, common law provided the strongest protection before 1998, but afterwards, German civil law has provided the strongest protection. The shift is explained by the results of cost-benefit driving to institutional entrepreneurs.;The empirical results from the Analysis of Variance (ANOVA) confirm the impacts of transaction cost (uncertainty and innovation) and legal environment (legal traditions, minority protections, and law and order) on investment flows. With respect to random effect estimation, a positive relationship is found with legal structure measures (German legal origin and law and order) and investment capital flows, especially FDI (first and third regressions) and Bond financing (all four regressions). However, the direction of the effects of transaction cost (innovation and uncertainty) on the flows is not clear. In an alternative approach, the Bayesian CART model, law and order play an import role in attracting other investments, such as trade credits and loans, into Asian countries. This is especially true for China, South Korea, Malaysia, and Thailand---countries that are assigned for high law and order, and not French-civil-law countries with the highest mean of other investment.
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