Are Merchandise Exports and FDI Inflows an Engine of Growth for ASEAN

The Association of Southeast Asian Nations (ASEAN) has made remarkable economic progress in terms of rapid economic growth and expanding export trade and foreign direct investment (FDI). Theoretically speaking, both merchandise exports and FDI can be regarded as the key driving forces behind the ‘economic miracle’ of the regional economy. The major contribution of this study is that it is the first effort to empirically analyse the short-run and long-run growth effects of merchandise exports and FDI on the ASEAN-10 countries using time-series panel data. In this regard, this study aims to ascertain whether the spectacular regional growth is export- and FDI-driven, based on the ASEAN-10 panel data spanning from 1970 to 2016 using the pooled mean group (PMG) method. The findings show that merchandise exports are a key source of growth for the regional economy, attributable to the joint liberalisation efforts of the member states to expand trade and FDI. The study does not find evidence of FDI-led growth because the bulk of the FDI was invested in only a few ASEAN countries, and the minor FDI-recipient countries are at an early stage to benefit from the growth impacts of FDI, owing to lower absorptive capacity. JEL Classification: C51, F21, F23, O1