THE IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH: THE ROLE OF IDIOSYNCRATIC RISK AND INFLATION
The main objective of this study is to examine the relationship between foreign direct investment (FDI) and economic growth in ASEAN countries from 2013 to 2022. Specifically, the study examines the regulatory impact of idiosyncratic risk and inflation on this relationship. Method Using ASEAN statistical data from 2013 to 2022, multiple regression models are used to analyze the impact of inward FDI and intra-regional FDI on economic growth. Interaction terms are included to account for the moderating effects of idiosyncratic risk and inflation. Control variables such as SDG poverty and SDG affordability are also included in the model. Results Regression analysis shows that idiosyncratic risk significantly moderates the relationship between FDI and economic growth, with a positive and significant coefficient for the interaction term involving idiosyncratic risk. On the other hand, the interaction terms involving inflation are not significant. Results The results indicate that idiosyncratic risk amplifies the positive impact of FDI on economic growth, suggesting that a dynamic and opportunity-rich environment encourages foreign investment. In contrast, inflation does not significantly change the FDI-growth relationship. Furthermore, improving poverty reduction and affordability is crucial to promoting economic growth in ASEAN countries. Policy implications Policymakers in ASEAN countries should focus on creating a balanced risk environment to attract FDI while minimizing excessive uncertainties. Efforts to reduce poverty and improve access to finance should be prioritized to further enhance economic growth. While it is important to maintain stable inflation, its role in moderating the FDI-growth relationship appears to be less important.
Foreign Direct Investment (FDI); Economic Growth; Idiosyncratic Risk; Inflation