Symmetric and Asymmetric Nexus Between FDI, Trade and Economic Growth: Evidence from ASEAN Countries

Kailash Pradhan (), Sonali M. Mohapatra, Md. Umar Farooque and Lipsa Mohanty
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Kailash Pradhan: Department of Economics, Mahatma Gandhi Central University, Motihari, Bihar, India
Sonali M. Mohapatra: Department of Economics, Rama Devi Women’s University, Bhubaneswar, Odisha, India
Md. Umar Farooque: Jamia Milia Islamia Central University, New Delhi, India
Lipsa Mohanty: Mahatma Gandhi Central University, Motihari, Bihar, India

Annals of Financial Economics (AFE), 2024, vol. 19, issue 04, 1-30

Abstract: This research aims to investigate the cause-and-effect relationship between foreign direct investment (FDI), trade, and economic growth in the countries of the Association of Southeast Asian Nations (ASEAN). Its originality lies in examining the causal connection between FDI inflows and economic growth by considering both symmetric and asymmetric behaviors. This nuanced approach, absent in prior research, uses symmetric and asymmetric panel vector error correction mechanisms to assess short-run and long-run connections from 1990 to 2020 for 10 ASEAN countries. Empirical results confirm a long-run causal connection between FDI, exports, imports, and GDP. The symmetric vector error correction model (VECM) findings indicate a two-way causal relationship between FDI and GDP. Furthermore, these results suggest that FDI boosts exports and that increased exports contribute to economic growth in ASEAN countries. When considering short-run effects, the estimations from the asymmetric model indicate that positive FDI shocks positively impact GDP, exports, and imports. These findings could guide ASEAN regions in formulating policies that promote FDI to stimulate exports and foster economic growth.

Keywords: Foreign direct investment; import; exports; economic growth; ASEAN countries (search for similar items in EconPapers)
JEL-codes: F14 F21 O47 P45 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S2010495224500192

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