Abstract:
This study aims to investigate the impacts of foreign aid and democracy's impacts on ASEAN economic growth by using Panel Vector Autoregressive (PVAR) and Panel Vector Error Correction (PVEC) Models. The data used in the study ranged from 2010 to 2017, totaling eight years. Two empirical models, namely model with democracy variable and model without democracy variable, were considered to check the forecasting power of democracy. The empirical results showed that there exists a cointegration in the PVAR model for both with and without democracy. When comparing the coefficients between the absence of democracy and the presence of democracy involved, it was found that the democratic variable improved the model performance. The empirical results also revealed that if the growth increases gross domestic product, it decrease foreign aid received. Therefore it can be conclusion that democracy and foreign subsidies are essential components of disruption to economic growth, especially countries with poor economic policies.