ASEAN Growth Dynamics: Challenging the Dominance of Monetary Expansion

This study examines the dynamic relationship between money supply and economic growth in ten ASEAN economies using a modified Quantity Theory of Money framework incorporating inflation and foreign direct investment (FDI). Balanced panel data covering 2000–2024 are analyzed using the two-step System Generalized Method of Moments (SYS-GMM) estimator to account for dynamic adjustment and potential endogeneity. The results show that changes in money supply have a negative and statistically significant effect on economic growth in both the short and long run, suggesting that monetary expansion may constrain economic performance when liquidity is not effectively transmitted to productive economic activity. In contrast, changes in inflation do not significantly affect economic growth, whereas changes in FDI have a positive and statistically significant effect. This positive association is consistent with FDI-related channels involving technology transfer, managerial capabilities, productivity spillovers, and integration into international markets. Significant lagged output coefficients confirm dynamic adjustment in growth. Robustness analysis indicates a significant negative output shift during the 2008–2009 Global Financial Crisis, whereas the COVID-19 pandemic exhibits weaker evidence of an adverse shift in output growth. The findings suggest that ASEAN-10 policymakers should maintain monetary discipline, strengthen institutional conditions that support productive FDI, and enhance macroeconomic resilience to external shocks.