The Effect of Unemployment, Real Exchange Rates, Domestic Credit, and Foreign direct investment on Economic Growth in ASEAN-5

Abstract

This study investigates the effect of unemployment, real exchange rates, domestic credit, and foreign direct investment (FDI) on economic growth in five ASEAN countries Indonesia, Myanmar, Thailand, the Philippines, and Vietnam during the period 2000 to 2024. Using annual data from the World Bank’s World Development Indicators (WDI), the study applies a Panel Autoregressive Distributed Lag (Panel ARDL) model under the Pooled Mean Group (PMG) estimator to analyze both long-run and short-run relationships among the variables. The findings reveal that, in the long run, the real exchange rate and domestic credit exert significant negative effects on economic growth, suggesting that excessive exchange rate volatility and inefficient credit allocation hinder economic performance. Conversely, unemployment and FDI show statistically insignificant effects, indicating that labor market inefficiencies and foreign investment inflows have not yet translated into consistent growth benefits across ASEAN economies. In the short run, the error correction term is negative and significant, confirming a strong adjustment toward equilibrium, while unemployment fluctuations have a substantial short-term impact on output. The results imply that exchange rate stability, efficient credit management, and improved labor market conditions are essential for sustaining long-term economic growth in ASEAN-5 countries.