A New Look at the Determinants of Growth in Asian Countries

IMF Working Papers, September 3, 2015

Source details

Study examines drivers of growth in Asian countries with focus on: investment, the exchange rate regime, financial risk, and capital account openness.
Data: panel data set of a sample of Asian countries over the period 1980 to 2012.
Key empirical results:
- Private and public investments are strong drivers of growth.
- More limited evidence that reduced financial risk supports growth.
- More limited evidence that higher foreign direct investment supports growth.
- The exchange rate regime does not appear to be a strongly significant determinant of growth, but some specifications suggest that more flexible regimes are beneficial.
- Financial crises have a stronger dampening effect on growth in countries with more open capital accounts.

Empirical approach: panel data analysis covering a sample of Asian countries.
Time coverage: 1980 to 2012.
Focus variables: private investment, public investment, exchange rate regime, financial risk, foreign direct investment, capital account openness, financial crises.

Investment-led growth:
- Strengthening private and public investment is identified as a robust channel to foster economic growth.
Financial stability and openness:
- Reducing financial risk can support growth, though the evidence is more limited than for investment.
- Capital account openness intensifies the growth-dampening impact of financial crises, suggesting that policies to manage capital flow volatility and to shore up financial resilience are important when capital accounts are open.
Exchange rate regime:
- No strong general effect of exchange rate regime on growth across specifications.
- Some model specifications indicate potential benefits of more flexible exchange rate regimes for growth.

_wp15195 - Appendix A
- _wp15195 - Appendix A (Markdown version)
- _wp15195 - Appendix A (PDF)