Journal Article

The impact of private credit and foreign direct investment on economic growth: evidence from ASEAN-5 countries

Ho, Ngoc Khuong, Vo, Thi Kim Loan

2025

Overview

This study contributes by conducting a parallel assessment of foreign direct investment (FDI) and domestic credit to the private sector (private credit, DCP) within a unified dynamic panel setting, clarifying their short-run and long-run associations with growth in five ASEAN countries (ASEAN-5: Vietnam, Thailand, the Philippines, Indonesia, and Malaysia) during the period from 1986 to 2023. While many studies have examined the individual effects of FDI and DCP on economic growth, few have investigated their combined influence within the ASEAN-5 context. Using panel data from the World Bank, this study applies Autoregressive Distributed Lag (ARDL) and Error Correction Models (UECM and RECM) to capture both short-term and long-term effects. The results indicate that while FDI exhibits a positive association with economic growth, private credit exerts a negative impact, particularly when not effectively allocated toward productive sectors. Trade openness and gross fixed capital formation are also positively associated with growth, while government consumption expenditure shows a negative relationship. Overall, the findings underscore a key policy implication that governments should carefully regulate private credit expansion to align with productive economic sectors while strategically enhancing the attractiveness of FDI to sustain long-term economic growth in ASEAN-5.

• Publisher: Taylor & Francis Group
• Subject: ARDL model / ASEAN-5 / economic growth / Economics / FDI / Private credit