Causality of Economic Growth and Openness in ASEAN-5

Objective – This study aims to determine the relationship between FDI and trade and its effect on economic growth in ASEAN-5 countries using the Engel-Granger causality method. Methodology/Technique – The study uses OLS panel regression analysis to identify the relationship between the variables in each country. The results of the Engel-Granger causality test indicate that there is a two-way relationship between economic growth and FDI, and economic growth and international trade. Findings – When tested together through panel regression, it is concluded that the best model is a random effect method (REM) in which FDI and international trade significantly influence economic growth in the same direction. However, the relationship between FDI and international trade and its effect on economic growth in Indonesia, the Philippines and Thailand was negative, whilst in Malaysia and Singapore the relationship has a directional trend. Novelty – To reinforce the FDI inflows, authorities should continue the progressive reduction of barriers, and increase the sophistication of quality exports to compete in the global market. This paper is the first of its kind to analyze the role of both FDI and exports in the ASEAN5 economies using panel analysis. Type of Paper: Empirical