FDI and sustainable GDP for select Asian countries: the role of nonlinear analysis

Purpose The primary aim of this paper is to examine the role of asymmetry in the relationship between FDI shocks and real GDP across seven selected Asian countries, contributing to a deeper understanding of how FDI influences economic growth in the region. Design/methodology/approach This study employs two advanced methodologies: the nonlinear autoregressive distributed lag (NARDL) model and the generalized impulse response function (GIRF). The NARDL model is used to explore both the long- and short-term asymmetric effects of FDI on real GDP, while the GIRF is employed to analyze the responses of GDP to both positive and negative FDI shocks. Findings The results reveal that FDI asymmetrically affects real GDP in the long run in five of the countries under consideration: Indonesia, Malaysia, the Philippines, Singapore and Thailand. Short-term asymmetry is also confirmed for Malaysia, Thailand and Japan. Additionally, the GIRF analysis demonstrates that the responses of GDP to positive and negative FDI shocks differ significantly and are not mirror images. Practical implications The findings have important policy implications, suggesting that policymakers should consider the asymmetrical effects of FDI when designing economic strategies and responses to foreign investment shocks. These insights can enhance empirical modeling and contribute to more effective economic planning in the region. Originality/value This paper is unique in its explicit focus on asymmetry in the relationship between FDI shocks and real GDP, applying advanced econometric techniques to provide a more nuanced understanding of this dynamic. The study’s results offer valuable contributions to both policy analysis and empirical modeling in the context of Asian economies.