Understanding Idiosyncratic Risk and Economic Growth in ASEAN

Abstract

This study examines the relationship between idiosyncratic risks, foreign direct investment (FDI), and economic growth in ASEAN countries using data from 2013 to 2022. Idiosyncratic risks refer to specific assets or individual sectors, distinct from systemic or market-wide risk. This study aims to determine whether idiosyncratic risks affect the ASEAN region's FDI flows and economic growth. The study uses structural equation modeling (SEM) analysis to analyze the ASEAN Statistical Database data. Regression weights are used to evaluate the relationship between idiosyncratic risks, FDI, inflation, SDG availability, and economic growth. The results indicate that although there is no significant direct relationship between idiosyncratic risk and FDI inflows, there is a significant positive correlation between idiosyncratic risk and economic growth. These findings have implications for policymakers and investors seeking to promote sustainable economic development in ASEAN countries. Understanding the dynamics of specific risks can inform strategies to attract FDI and stimulate economic growth. This study contributes to the theoretical basis of risk management and economic development in emerging market economies such as those in the ASEAN region.