The Linkages Between Domestic Investment, Foreign Direct Investment And Economic Growth In Asean Five Countries

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Date
2012-07
Authors
Tan, Bee Wah
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Publisher
Universiti Sains Malaysia
Abstract
This study is an empirical analysis of the linkages between domestic investment, FDI and economic growth in ASEAN-5 countries namely Indonesia, Malaysia, the Philippines, Singapore and Thailand. The objectives of this study are to examine the cointegration and causal relationships between the variables. Furthermore, this study also determines the complementary or substitution effects of FDI on domestic investment in the ASEAN-5 countries. This study used the time series econometric analysis in determining the linkages between the variables for a sample period from 1970 to 2009. The theoretical model is based on the Solow‟s (1956) growth model in explaining the behaviour of ASEAN-5 economies. This study utilized the Johansen and Juselius (1990) cointegration test to find the potential long-run equilibrium relationship among the variables. In addition, the Granger causality test was using in determining the causal relationship among the variables. The major findings of this study are summarized as follows: (i) the results of cointegration test revealed the presence of long-run relationship among the variables in ASEAN-5 countries; (ii) the causality test indicated that domestic investment Granger causes economic growth in Indonesia while there is strong bidirectional causality relationship between domestic investment and economic growth in Malaysia, the Philippines, Singapore and Thailand, which support the hypothesis that domestic investment is a significant contributor to economic growth among these countries; (iii) FDI Granger causes economic growth in Indonesia, Singapore and Thailand indicated that influx of FDI will stimulate economic growth among these countries, while bidirectional causality relationship between domestic investment and FDI was found in Malaysia and the Philippines; (iv) the unidirectional causal relationship running from FDI to domestic investment in Singapore and Thailand, while bidirectional causality relationship between domestic investment and FDI in Malaysia and the Philippines, which proved that the collaborating between domestic investment and FDI are important for the economic development.
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Keywords
The linkages between domestic investment , economic growth in Asean five countries
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