CENTRAL BANK INDEPENDENCE AND ECONOMIC GROWTH: EVIDENCE FROM ASEAN COUNTRIES

Abstract

The rise of central bank independence (CBI) raises questions regarding the importance of CBI for economic growth. Where conventional theory focuses on the link between CBI and inflation as the common primary objective of any central bank is price stability, this paper explores the theoretical framework of CBI while making the connections to the potential impact it could have on economic growth especially in the context of the ASEAN region. Hence, the aim of this paper is to investigate the relevance of the CBI in the ASEAN region in comparison to the existing literature. Observing nine countries in the ASEAN region across 1996 to 2017, and using the Feasible Generalized Least Squares Method, the study found that the legal CBI has positive impact on economic growth, while the de facto CBI is not significant. The finding raises questions regarding how the economic agents perceive aspects of the CBI.