The impacts of macroeconomic variables on economic growth: Evidence from China, Japan, and South Korea

Abstract

This paper investigates the impacts of macroeconomic variables, namely foreign direct investment, population, and real effective exchange rate on the economic growth of China, Japan and South Korea. The annually data is collected from 2000 to 2016, covering 17 observations. In this study, the panel regression kink design based on the GME estimator is proposed for examining a discontinuous slope of the relationship between variables especially when the data is limited. The estimated results show that GME3 is the most appropriate model to describe impacts of macroeconomic factors on economic growth in China, Japan and South Korea as it has the maximum Entropy value and minimum value of mean squared error (MSE). In addition, the estimated results obtained from this proposed method just emphasize the distinct and discontinuous impacts of macroeconomic variables on the GDP. We found that all the considered variables significantly affected the GDP. However, the effects of FDI and POP were discontinuous due to the kink effect. For the case of FDI, the coefficients appeared to be negative and positive in the GDP, whereas the effects of POP were found to be positive in the GDP.