The Role of Foreign Capital Inflows on Economic Growth of the Southeast Asian Least Developed Countries
Keywords:Foreign capital inflows, Economic growth, Southeast Asia
The economic development of the least developed countries relies on foreign capital inflows significantly. The existing literature indicates the ambiguous effects of capital inflows on economic growth. This work investigates the effect of foreign capital flows on Southeast Asian least developed countries: Cambodia, Lao PDR and Myanmar, by including remittance, foreign direct investment and official development assistance in the regression simultaneously. An autoregressive distributed lag (ARDL) model, based on neoclassical growth theory, is employed using annual data between 1980 and 2017. Our empirical findings reveal that the short run effect of international remittance becomes insignificant in the long run in Cambodia and Lao PDR, whereas the short run positive impact still remains in the long run for Myanmar. The foreign direct investment raises economic growth in all three countries in both short run and long run. Lastly, while the short run contribution of official development assistance on economic growth of Cambodia and Lao PDR still remains in the long run, the effect becomes insignificant for Myanmar.
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