Empirical Analysis of Growth Slowdown in Asean

Robust economic growth across the members of the Association of Southeast Asian Nations (ASEAN) has lifted millions out of poverty. Nevertheless, there are concerns about whether growth will be derailed in the future. This paper provides a comprehensive analysis of growth slowdown for the ASEAN economies which are at different levels of development. We aim to answer two questions: First, are determinants of economic slowdown likely to differ across income groups? Second, what are the probabilities that economies in ASEAN will experience a growth slowdown in the near future? We construct a sample of 107 economies including ASEAN economies, Greater China economies, as well as sub-national economies of India and Indonesia. The sample spans the period 1993-2013. We first classify these economies into four different income groups: low-income economies, lower-middle-income economies, upper-middle-income economies and high-income economies using the criteria proposed by Felipe (2012). Next, we adopt the methodology of Eichengreen et al. (2012) to create a dummy variable representing the occurrence of growth slowdown episodes in each income group. We then run income group-specific logistic regressions to identify the determinants of growth slowdown and use Bayesian Model Averaging (BMA) techniques as a robustness check for our empirical findings. Using the regression results, we compute economy-specific predictive probabilities of growth slowdown over the period 2012-2017. Overall, the level of Gross Domestic Product (GDP) per capita and human capital formation appear as important determinants of growth slowdown in all income groups. However, aside from these two variables, growth slowdown tends to be associated with different factors at different levels of development. Most notably, FDI inflows is an important determinant of growth slowdown for low-income and lower-middle-income economies while employment in the tertiary sector affects the probability of growth slowdown of lower-middle-income, upper-middle-income and high-income economies. Furthermore, we find that on average, ASEAN economies have a one-in-five chance of experiencing growth slowdown over the period 2012-2017. In terms of policy implications, the economy-specific predictive probabilities we compute may serve as early warning signs for policy-makers. Meanwhile, results from the regression analyses provide a roadmap for policy intervention to combat the risk of growth slowdown.