The Impact of outward foreign direct investment and international trade on economic growth in ASEAN

Abstract

The research conducted in this study examined the relationship between foreign direct investment, international trade, and economic growth in the ASEAN region and investigated the non-linear impact of foreign direct investment and international trade on economic growth. The study used a panel smooth transition regression model. The findings of the study revealed that the non-linear relationship is significant, particularly when there is a relatively low level of foreign direct investment from foreign countries, i.e., below exp(18.0812) = 71,214,001 million US dollars. In this case, international trade had a negative effect on the economy. However, when foreign direct investment exceeds 71,214,001 million US dollars, increasing the level of free trade had a positive impact on the sustainable economic development of the ASEAN countries. Additionally, the study discovered that the non-linear impact of international trade had a critical threshold at exp(9.9068) = 20,066.36 million US dollars. Beyond this threshold, an increase in the level of trade openness with a trade value exceeding 20,066.36 million US dollars had a positive and sustainable effect on the economic development of the ASEAN region. These results emphasize the significance of foreign direct investment and international trade in the economic development of the ASEAN countries and highlight the importance of considering non-linear relationships in economic modeling.