Oil Price Shocks and GDP Performance in ASEAN: Evidence from Panel Data Models

Abstract

Using balanced panel data of eight ASEAN economies for the period 2000–2024, this study investigates the determinants of economic growth in selected ASEAN economies. The analysis examines the impact of crude oil price, government spending, exchange rate, investment, inflation and trade openness on real GDP. Pooled ordinary least squares (POLS), fixed effects (FE), and random effects (RE) models are conducted as panel estimation techniques. The results from the model selection tests suggest that since some unobserved time-invariant factors persist across countries, the fixed effects specification provides the most appropriate estimation method. The negative and significant impact of crude oil prices on GDP implies that external energy price shocks can stifle economic growth through increasing costs of production, by pushing inflationary pressure. On the other hand, the significant and positive coefficient of government expenditure indicates the key role of fiscal policy for aggregate economic activity. Exchange rate dynamics are found to have positive and significant impacts, thus reinforcing the assertion that exchange rate competitiveness promotes growth via performance of exports. The investment boost results in more capital accumulation and thus increases the productive capacity of the economy, which validates a positive supply-side effect on GDP, further playing an important role for long-term economic development. While inflation has its adverse effects on GDP owing to the pernicious impact of macroeconomic instability, trade openness generates positive economic growth through market integration, export expansion and productivity improvement. The results underscore the significance of energy diversification, fiscal prudence, investment mobilization, inflation targeting and trade integration in attaining sustainable economic growth in ASEAN nations.