Analysing the Impact of Foreign Direct Investment on Economic Growth: A Comparative Study of Selected ASEAN Countries from 1980 to 2023
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Universiti Malaysia Sarawak (UNIMAS)
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This study examines the influence of Foreign Direct Investment (FDI) on economic growth in Malaysia, Indonesia, and Thailand from 1980 to 2023. The impetus arises from the growing dependence of ASEAN nations on foreign direct investment as a source of finance, technology, and development, especially during periods of economic instability. The durability of FDI-driven growth has been questioned due to recurrent global shocks, such the Asian Financial Crisis, the Global Financial Crisis, and the COVID-19 pandemic. This study seeks to analyze the interaction between foreign direct investment (FDI) and economic growth under various economic frameworks and policy contexts. The study employs time series analysis through the Vector Error Correction Model (VECM), Vector Autoregression (VAR), and Granger causality tests to investigate both short-run and long-run dynamics. Findings indicate that Malaysia and Thailand demonstrate long-term cointegration between foreign direct investment (FDI) and gross domestic product (GDP), implying FDI's enduring role in economic growth. Conversely, Indonesia exhibits only transient interactions, signifying structural disparities in investment absorption. The research indicates that trade openness, inflation, interest rates, and government expenditure significantly mediate the relationship between foreign direct investment and economic growth. These findings underscore the necessity for tailored and context-specific strategies to enhance the durability and developmental efficacy of FDI inflows. Policymakers are urged to enhance institutional quality, promote industry diversification, and reduce macroeconomic vulnerabilities to fully capitalize on the advantages of FDI.