A nexus between intra-ASEAN outward FDI, intra-ASEAN exports and economic growth of ASEAN-10: evidence using panel causality analysis

Abstract

Purpose

The Association of Southeast Asian Nations (ASEAN) has evolved into ASEAN Economic Community (AEC), which aims to pursue a single market and production base to transform ASEAN into a dynamic, competitive and global region. ASEAN is inherently heterogeneous that potentially could promote further economic integration, fundamentally, through the interactions between intra-regional outward foreign direct investment (OFDI), export trade and economic growth. Hence, this paper attempts to explore the causal relationship between intra-ASEAN OFDI, intra-ASEAN exports and economic growth of ASEAN-10 countries.

Design/methodology/approach

This paper attempts to explore the causal relationship between intra-ASEAN OFDI, intra-ASEAN exports and economic growth of ASEAN-10 countries, using regional panel data based on Dumitrescu and Hurlin (2012) non-causality analysis, which allows us to take into account of the heterogeneity in terms of causal relationships.

Findings

The empirical study shows bidirectional causality between intra-ASEAN export and intra-ASEAN OFDI, a bidirectional causality between intra-ASEAN export trade and intra-ASEAN economic growth and a unidirectional causality running from the real GDP of ASEAN-10 countries to intra-ASEAN OFDI.

Research limitations/implications

The findings have implications for the extent of intra-ASEAN production fragmentation, policy formulations for furthering intra-regional OFDI, and trade to achieve the ASEAN integration agenda.

Originality/value

The main contribution of the current study is to use the panel causality analysis for an emerging dynamic region, specifically, the AEC. As far as we know, this is the first study ascertaining whether there is a causality relationship between intra-ASEAN OFDI, intra-ASEAN export trade and economic growth of ASEAN-10, which is a longstanding objective of ASEAN integration agenda.