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

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.