The Impact of Domestic and Foreign Direct Investments on Economic Growth: Evidence from ASEAN Countries

In this paper, the dynamic relationships between foreign direct investment (FDI), domestic investmentand other determinants of economic growth were examined. Both the short-run and long-run growthprocesses were modelled using the ARDL approach to carry out cointegration analysis for five ASEANcountries. The main results included (i) domestic investment, FDI, human capital and financialintermediation significantly affected economic growth; (ii) FDI had a positive and significant effecton growth but this was of lesser magnitude as compared to domestic investment; and (iii) a strongsupport was found for an export-led-growth hypothesis, and the impact of technology transfer frominternational trade was larger than direct technology transfer from FDI. All in all, our empiricalresults from the ASEAN countries confirm the view that investments and exports are the engines ofgrowth and it is worthwhile for the authorities to encourage domestic as well as foreign capital toput these countries back on their pre-crisis growth paths.JEL Classification: F21, F23.