The Effect of Foreign Debt, Foreign Direct Investment, Trade Openness, Labor, and Government Expenditure on Economic Growth in Lower Middle and Upper Middle Income ASEAN Countries

Abstract

This study examines the effect of foreign debt, foreign direct investment (FDI), trade openness, labor force, and government expenditure on the economic growth of lower-middle and upper-middle-income ASEAN countries (Indonesia, Thailand, Malaysia, the Philippines, Vietnam, and Cambodia) from 2000 to 2019. Utilizing panel data—comprising time-series and cross-sectional data sourced from the World Bank and the Malaysian Authority—this study employs a multiple linear regression analysis. Based on model estimation tests, the Fixed Effect Model (FEM) was selected as the optimal approach. The findings indicate that, simultaneously, foreign debt, FDI, trade openness, labor force, and government expenditure significantly affect economic growth in the observed region. Partially, FDI, labor force, and government expenditure exert a positive and significant impact. Trade openness demonstrates a positive but non-significant effect, whereas foreign debt negatively and insignificantly impacts economic growth. These results highlight the crucial role of domestic fiscal management and investment in driving sustainable growth and avoiding the middle-income trap.