The Effect of Foreign Direct Investment and Foreign Exchange Reserves on Economic Growth in ASEAN Countries

Abstract

This study aims to examine the effect of foreign direct investment (FDI) and foreign exchange reserves on economic growth in ASEAN countries during the 1995-2021 period. Estimation results on modeling Autoregressive Distributed Lag (ARDL) show that in the long run foreign exchange reserves have a significant positive relationship with economic growth whereas FDI in the long run has no effect on economic growth. The short-run estimation results show that foreign exchange reserves have no effect on economic growth, while FDI in the short run has a significant positive relationship with economic growth. FDI and foreign exchange reserves need to be increased in ASEAN countries to encourage economic growth.