Foreign Direct Investment, Financial Development, and Economic Growth in ASEAN Countries

Abstract

blished: Feb 28, 2024 Abstract Foreign direct investment can be a solution to overcome domestic capital limitations. The spillover effect from FDI does not necessarily exist but needs to be created. Advanced domestic financial development will encourage the positive influence of FDI on economic growth. This research analyzes the relationship between foreign direct investment, financial development, and economic growth in ASEAN countries from 1999 to 2019. Additionally, it also aims to analyze the effect of inflation, exchange rates, and human capital on economic growth. The research method uses panel data analysis using Fixed Effect Model (FEM). The research results show that foreign direct investment, exchange rates, and human capital have a positive and significant effect on economic growth. Inflation has a negative and significant effect on economic growth. Financial development strengthens the effect of foreign direct investment on economic growth. Thus, domestic financial development needs to be improved in order to maximize greater benefits from the presence of FDI.