Analysis of Factors Influencing Economic Growth in Lower-Middle-Income ASEAN Countries
This study analyzes panel data from 2012 to 2024 for five lower-middle-income ASEAN countries and finds that while foreign debt positively influences economic growth, exports, imports, and foreign direct investment do not, with no significant heterogeneity in these effects compared to Indonesia.
Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer
Imagine you are watching a group of friends trying to build the ultimate treehouse together. Some are just starting to lay the foundation, while others have already added a second story. In the world of economics, this "treehouse building" is called economic growth, which is basically a country getting richer and producing more stuff over time. To figure out how to build this treehouse faster, economists often look at four main tools: Exports (selling your treehouse parts to neighbors), Imports (buying cool tools from neighbors), Foreign Direct Investment (a rich neighbor giving you money to build), and Foreign Debt (borrowing money from a bank to buy materials). For a long time, people thought that if you just sold more, bought more, and got more money from abroad, your treehouse would automatically grow taller. But sometimes, the tools don't work the way we expect, and the treehouse stays the same size. This paper is like a detective story where researchers investigate exactly how these four tools are working for a specific group of friends in Southeast Asia.
The researchers, Isra Nurul Utama and Madris from Hasanuddin University, decided to zoom in on five "lower-middle-income" countries in the ASEAN region (the Philippines, Cambodia, Laos, Timor-Leste, and Vietnam) and compare them to Indonesia, a friend who just recently moved up to the "upper-middle-income" club. They looked at data from 2012 to 2024 to see if selling things, buying things, getting foreign cash, or borrowing money actually made these countries' economies grow. They used a fancy math method called "panel data regression" (think of it as a super-accurate calculator that checks every country at the same time) to see if the rules were different for each friend.
Here is what they found, and it might surprise you. First, they discovered that Exports and Imports didn't seem to make the treehouse grow at all. Even though these countries were selling and buying more stuff, it didn't translate into a bigger, richer economy. It's like if you sold your lemonade to the whole neighborhood, but you had to buy all the lemons and sugar from a store across town, so you didn't actually keep any extra profit. The paper suggests that these countries aren't adding enough "value" to what they sell; they are just moving things around without making them better or more useful at home.
Second, and this is the twist, Foreign Direct Investment (when rich companies from other countries put money in) actually had a negative effect. The paper suggests that instead of helping the local economy grow, this outside money might be crowding out local businesses or taking profits back home without helping the local treehouse get stronger. It's like if a rich neighbor gave you a giant hammer, but then used it to build their own treehouse right next to yours, leaving your own construction stalled. The study indicates that without the right local skills and rules, this outside money doesn't help the economy grow; it might even slow it down.
However, there was one tool that worked: Foreign Debt. The paper found that borrowing money from abroad actually helped these countries grow. It's like taking a loan to buy a better saw or a stronger ladder. As long as the countries used that borrowed money to build useful things like roads, schools, or power plants, the economy got bigger. The study suggests that for these specific countries, the benefits of having that extra cash right now are still bigger than the worry of paying it back later.
Finally, the researchers checked if the rules were different for the "lower-middle-income" friends compared to Indonesia. They found that no, the rules were basically the same. Even though Indonesia is a bit richer now, the way exports, imports, foreign investment, and debt affect growth is still very similar to the other countries. The paper suggests that despite the income difference, these countries are still facing the same structural challenges, and the "magic formula" for growth hasn't changed just because one country got a little richer.
In short, this paper tells us that for these Southeast Asian countries, simply selling more or buying more isn't the secret to getting rich. Getting outside investment might even be a trap if not managed perfectly. But borrowing money to build real things? That seems to be working. The big lesson is that to really grow, these countries need to stop just moving things around and start making sure that every dollar they get—whether from loans or investors—actually helps build something new and useful inside their own borders.
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