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American Research Journal of Economics, Finance and Management 

Volume 11 Issue 2, April-June 2023 

ISSN: 2836-9416 

Impact Factor: 5.57 

Journal Homepage: https://americaserial.com/Journals/index.php/ARJEFM, 

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63 | P a g e  

MACROECONOMIC RESILIENCE AND POVERTY REDUCTION IN 
ASEAN: A COMPREHENSIVE ANALYSIS 
 
 

1Dr. Aulia Rizqiyah Wulandari and 2Muhammad Faisal Rahman 
1Department of Economics, Universitas Islam Indonesia, Address: Condong Catur, Depok, Sleman, 

Yogyakarta, Indonesia. 
2Graduate Student in Economics, Universitas Gadjah Mada, Address: Catur Tunggal, Depok, Sleman, 

Yogyakarta, 
Indonesia. 

 
Abstract: Poverty remains a persistent challenge in the Association of Southeast Asian Nations 
(ASEAN) member states, despite various efforts to address it through regional integration initiatives. 
This abstract examines the ongoing battle against poverty in ASEAN, which has its roots in the 
organization's founding goals of promoting prosperity and social progress. Despite multiple 
initiatives and policies aimed at poverty alleviation, around 120 million people in ASEAN still live 
below the poverty line, with Indonesia and the Philippines having the highest poverty rates. 
Governments in ASEAN have pursued strategies such as maintaining a favorable foreign investment 
climate (FDI), striving for five percent annual economic growth, and managing inflation and 
unemployment. Among these strategies, FDI plays a crucial role as it contributes to economic growth 
and job creation. This abstract underscores the significance of FDI in poverty reduction and 
highlights the importance of maintaining macroeconomic resilience to achieve ASEAN's poverty 
alleviation targets. 
Keywords: Poverty, ASEAN, regional integration, foreign direct investment, economic growth, job 
creation 
 
 
I.  Introduction  
Poverty is a problem for the economies in the world, including for The Association of Southeast Asian 
Nations (ASEAN) member states. The ASEAN declaration in 1967 reveal that the missions of poverty 
alleviation became one of the goals of the establishment of ASEAN regional integration. It aims to 
realize prosperity and social progress. Various efforts have been implemented into several ASEAN 
Blueprint Roadmaps. For example, the Declaration of ASEAN Concord in 1976, the ASEAN Ministers 
Meeting on Rural and Poverty Eradication (AMRDPE) in 1997, the ASEAN Socio-Cultural Community 
Council (ASCC) in 2003, and the ASEAN Economic Community Council (AEC) in 2009 (ASEAN 
Secretariat, 2019). Through the integration of ASEAN policy and development cooperation in each 
country, the poverty rate in ten ASEAN countries tends to decreasing. However, poverty remains a 
challenge due to many people still live below US$1.90 per day in ASEAN member states. It is estimated 
that there are around 120 million people ASEAN population living below the poverty line. ASEAN 
poverty rate is almost a quarter of the total population of ASEAN (Himawan and Tanjung, 2016). 

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Indonesia and the Philippines are the countries that have the highest poverty rates. Arround 90 percent 
of poor people in ASEAN integration from Indonesia and the Philippines until 2017(Johanna Chisholm, 
2017).   
To overcome the issue of poverty, the governments in ASEAN countries have maintained a foreign 
investment climate (FDI), encouraged the economy to grow up five percent per year, inflation and 
unemployment controlled (Utama, 2015;ASEAN Secretariat, 2019). ASEAN Statistic Annual Report 
(2013) alleviation targets can be achieved if ASEAN countries maintain macroeconomic resilience such 
as the FDI climate. FDI has becomes a catalyst to providing positive impacts such as to create of new 
jobs for each country (Júlio et al., 2013).  
According to Teixeira and Loureiro (2019) explained that ASEAN member countries prioritized the 
allocation of FDI inflows through the integration of the ASEAN Comprehensive Investment Agreement 
(ACIA) in 2009. Until 2018, the allocation of FDI Inflow to ASEAN countries was US$ 155 billion, which 
around 66 percent from the service sector (UNCTAD, 2019).  
In the context of GDP, ASEAN became one of the fifth largest economies in the world in 2018. This is 
because the economies in ASEAN countries have contributed to a GDP of around US$ 3 trillion of world 
of GDP (Septiari, 2019). Throughout 2019, economic growth in ASEAN was recorded at 4.8 percent or 
US$ 3.5 trillion (current USD). The contribution of GDP came from Indonesia reached US$ 1.1 trillion, 
Thailand US$ 543.5 billion, Singapore US$ 372.0 billion, Malaysia US$ 364.6 billion, and Vietnam US$ 
261.9 billion. ASEAN's economic growth was recorded to be higher than the world's economic growth 
of 2.3% (World Bank, 2020). But, if compared with the GDP per capita of ASEAN member states, it 
reaches around US$ 1,407 to US$ 65,233 in 2019. The GDP per capita figure in ASEAN countries is 
relatively high for several countries. However, the problem of poverty still occurs. Economic growth 
and GDP are not only high and sustainable, but also inclusive and equitable (ADB, 2018).   
II.  Literature Review   
ASEAN countries have a higher poverty rate than countries in other of the world. Research on the level 
of poverty in ASEAN is still not a done deal. Much of the literature is a form of review of the poverty 
level phase in ASEAN such as the ASEAN report which reviews poverty in 10 ASEAN countries. 
However, several studies examine the relationship between macroeconomic variables and poverty in a 
country. Studies by Hassan et al (2015); Perera and Lee (2013); Ruch and Geyer (2018); Teixeira & 
Loureiro (2019) shows how various macroeconomic sectors, including GDP influence poverty levels. 
The study that focuses on the poverty level of ASEAN countries as the dependent variable is nearly 
absent.  
Magombeyi and Odhiambo (2018) states allocation of foreign capital investment for the public sector 
has not significant contribution to poverty alleviation in South Africa. Other studies, such as those 
conducted by Ahmad et al (2019) found that the Inward FDI flow had a negative impact to poverty 
variables. It is because FDI became the catalyst to strengthening economic fundamentals in Asian 
countries. Meanwhile, Rachman et.al (2020) study shows that economic growth is essential in 
promoting development. Simultaneously, one percent increasing economic growth will reduce poverty 
in Cambodia, Malaysia, Indonesia, and Thailand.  
The ASEAN countries poverty related to the vicious circle of poverty phenomenon. The theory explains 
that people who lived below poverty line who experience a lack of capital. The poor people have limited 

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65 | P a g e  

capital which causes low of productivity and low income. Furthermore, due to low productivity and low 
incomes lead to low savings and investments. Then, the vicious circles of poverty will continue. If there 
are no extraordinary efforts to overcome the circle, the poor people of ASEAN countries always being 
to poor condition. Therefore, the fulfillment of basic needs and the definition of poverty for Indonesia 
still need to be researched more specifically about the definition. Descriptive analysis approach needs 
to be done to determine the reality of poverty in Indonesia. Poverty in developing countries such as in 
Indonesia tends to be influenced by several factors such as economic, social, and political factors (Ruch 
& Geyer, 2018).  
Theoretically, the changes of macroeconomics will affect a country's poverty level. This is because 
macroeconomic variables are the main factor determining of changes in the movement of a country's 
economy. In addition, quality resources must be considered by the state. Quality human resources will 
result in positive and significant economic growth, then will increase global competitiveness. 
Accordingly, this study proposes a hypothesis that macroeconomics such as economic growth, foreign 
investment, inflation, average years of schooling, exports and imports affect negatively on poverty in 
ASEAN countries.  
Based on the previous description, the objective of this study is to examine the effect of the 
macroeconomic variables toward the decline of the number of poor in ASEAN countries. The previously 
observed studies emphasize aspects of economic growth and macroeconomic indicators as the main 
topics. This research has two main objectives. First, to identify the characteristics of poverty in ASEAN. 
Second, to analyze the ability of economic growth and other macroeconomic indicators to influence 
poverty reduction in ASEAN countries.  
III.  Methodology  
To analyze the effect of macroeconomic variables on poverty levels in ASEAN countries, this study using 
the panel data from ten observation periods from 2010 to 2019. The dependent variable is the poverty 
level (Poverty Headcount Ratio below US$ 1.90 a day with PPP 2011), meanwhile for the independent 
variables in this study are Inward FDI (% of GDP), Economic Growth (%), Inflation (%), Mean Years 
Schooling (MeanValue), Export % of GDP, and Import % of GDP. Each dependent and independent 
variable data was captured by ASEAN Statistical Report, World Bank, World Poverty, and UNDP.   
Poverty data in eight ASEAN member states are not available in full at the World Bank, then the 
researchers took from other sources, namely the ASEAN Statistical Report and the World Poverty 
SDGs. The using of the World Bank's US$1.90 poverty measure aims to address each poverty 
percentage in the nine ASEAN countries is more comparable. The formulation of the model used in this 
study is as follows:  
LPOVAS it = β0 + β1LFDIASit+ β2LEGASit+ β3LUNMPASit+ β4LINFASit+ β5LEXPTASit+ 
β6LIMPTASit+ β7LMYSASit+  
eit                          

Table.1 Variable Definition   
  (1)   

 Variables   Variable Definition   Source   
 LPOVAS   Poverty Headcount Ratio below US$ 1.90 a day with PPP 

2011   
ASEAN Stat,  

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World Bank, 
and World 
Poverty   

 LFDIAS   FDI Inward (% of GDP)   World Bank   
 LEGAS   Economic Growth (%)   World Bank   
 LUNMPAS   Unemployment Rate (%)   World Bank   
 LINFAS   Inflation GDP Deflator (%)   World Bank   
 LMYSAS   Mean Years Schooling   UNDP   
 LEXPTAS   Export % of GDP   World Bank   
 LIMPTAS   Import % of GDP   World Bank   

  
In this research method, Panel Data Regression is used. Data analysis in this study has several stages 
in testing the specification model. Tests are carried out to choose which model is the most suitable 
between Common, Fixed, and Random effects. According to Baltagi (2005); Wooldridge (2009) when 
the Common Effect (1) model was tested. The next step is the Fixed Effect and Random Effect models 
are tested in panel regression. The basis of the Fixed Effect equation is as follows:  
Yit = β0 + βXit + ui + eit                     (2)  
Equation (2) shows the basic equation of Fixed Effect. Where, Y is the dependent variable with i as the 
individual observation and t is the time period. X is the independent variable in the observation period 
of time. Meanwhile is the coefficient for the independent variable and e is the error term. The equation 
model in Fixed Effect becomes:  
LPOVAS it = β0 + β1LFDIASit + β2LEGASit + β3LUNEMPASit + β4LINFASit + β5LEXPTASit + 
β6LIMPTASit +  
β7LMYSASit + eit                       (3)  
Where β0 is fixed (non-stochastic) and will be different if the variable has been input into the Random 
Effect model equation so that it is Random (Wooldridge, 2009).  
Yit = β0 + βXit + ui + eit                     (4) 
Equation (4) for each variable is the same as the explanation in equation (3). ui shows the individual 
residual which is a random characteristic of the i observation unit in each equation. Baltagi (2005) 
claims that the Chow Test was conducted to select the best model between the Common Effect model 
and the Fixed Effect model. After the Chow test, the Hausman test was carried out in selecting the Fixed 
Effect and Random Effect models.  
IV. Result and Discussion  
Table 2 describes the results of the Common Effects test, which shows that all independent variables 
are significant at 5% alpha, except for the LFDIAS variable which is not significant. The regression 
results represents that only variables from LEXPTAS and LMYSAS have a statistically negative and 
significant effect on poverty levels in the eight ASEAN countries. It is because the role of domestic 
exports can be an opportunity in the creation of new jobs provided the government pushes policies 
inward. Likewise, the mean years schooling shows an influence in reducing poverty levels in ASEAN 
countries. Meanwhile, the variables of economic growth, unemployment, imports, and inflation have a 
positive effect on poverty levels in the eight ASEAN countries.  

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The next step is analyze Fixed Effect and Random Effect as shown in table.3. The purpose of the Fixed 
Effect test is to compare each model is better between Fixed Effect or Common Effect. The result of 
Fixed Effect shows that all variables are significant at 5% alpha, except for LEGAS and LUNEMPAS 
variables. To compare which model is better between Fixed Effect and Common Effect, Chow test can 
be performed.   
Table 4 shows the results of the Chow test, the probability value of the F-count is smaller than 0.05 
(5%), which means the Fixed Effect model is better than the Common Effect model. Based on the 
principle of panel data analysis, if the Chow test results show a statistically significant value, then the 
test is continued on panel regression with using Random Effect model.  
Table.2 Common Effect Analysis  

Variables  
Common Effect  

Coef.  t-stat  

C  5.42  2.81  

LFDIAS  -0.21  -0.81  

LEGAS  1.68  3.52**  

LUNEMPAS  0.85  3.22**  

LINFAS  0.55  3.36**  

LEXPTAS  -5.24  -5.29**  

LIMPTAS  5.08  5.12**  

LMYSAS  -4.07  -4.39**  

R-Square  0.74  
  

Adj R-Square  
Observation  

0.72  
  
80  

Note: ***, **,* explain the stationary in for a = 1%, 5%, and 10% respectively 
The results of the Random Effect Test are described in table 2. All independent variables have a 
significant effect on poverty levels in the eight ASEAN countries. The variables of LFDIAS, LEXPTAS, 
and LMYSAS have a negative effect. Meanwhile LEGAS, LUNEMPAS, LINFAS, and LIMPTAS have a 
positive effect on poverty. To choose which model is the best between Fixed Effect and Random Effect, 
the Hausman test can be used. The Hausman test results are listed in table 3 which shows the Chi-
Square probability (X2) is greater than 0.05 (5%). The best model selected in the Hausman test is the 
Fixed Effect Model. The next step is to analyze the Fixed Effect Model test of all the effects of the 
independent variables on the poverty level.  

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Table.4 Chow Test and Hausman Test  

Summary  

 Chow Test   Hausman 
Te 

st  

Statistic  d.f  Prob  
Chi-Sq 
Stat  

d.f  Prob  

MLY - C   - 2.06     0.00     

MYN - C   - 0.73     0.00     

PHP - C   3.46     0.00     

THD - C   - 3.57     0.00     

VTN - C   0.40     0.00     

R - Square   0.97   
0.96   
80   

0.74   
0.72   
80   Adj R - Square   

Observa tion   

Note :   ***,**,* explain the stationary in for a = 1%, 5%, and 10% respectively   

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Cross-
Section F  

  
74.67  

(7.65)  0.00  -  -  -  

Cross 
Section 
Chi-
Squares  

176.14  7  0.00  -  -  -  

Cross 
Section 
Random  

-  -  -  3.66  7  0.81  

Note : ***,**,* explain the stationary in for a = 1%, 5%, and 10% respectively  
4.1 Summary and Analysis 
The Regression results of Fixed Effect Model show that FDI variable statistically has a positive and 
significant effect on poverty levels in the eight ASEAN countries. The coefficient of 0.28 indicates there 
is an increasing of allocation of Inward FDI by one percent, the poverty rate will continue to increase 
by 0.28 percent. This result is different from the findings Teixeira and Loureiro (2019) explained that 
when the flow of Inward FDI in Portugal increased, it had an impact on reducing poverty levels in 
Portugal. The positive relationship between Inward FDI and poverty rates in ASEAN countries due to 
the influence of foreign investment to the eight ASEAN countries has not yet effect on the small and 
medium economic sector. On the other hand, FDI allocation for the agricultural sector, education 
sector, and health sector must be increased to encourage the human development in ASEAN member 
countries (Ahmad et al., 2019). This research is also supported by findings from Magombeyi and 
Odhiambo (2018) explain that the influence of FDI in each country is positive and significant on 
poverty. This is indicated by the poverty rate that does not tend to decrease in developing countries and 
South Africa.  
According to the ASEAN Secretariat (2019) report, ASEAN countries have focused on allocating FDI 
funds to the business activity services reached around 80 percent in the last five years. The focus of 
ASEAN countries to encouraging foreign investment in the service sector is expected to create a 
business area environment and develop industry in the ASEAN region (Ziegenhain, 2020). However, 
there are still some obstacles of the inflow of foreign investment.   
This is because not in line with the strengthening of the community's economic resilience. ADB (2018) 
revealed that the high tendency to require foreign investment to enter ASEAN countries has not 
considered other factors such as the increasing of individual of wealth, the large number of middle-
class people, and the purchasing power and consumption sector in ASEAN. The unequal allocation of 
FDI to all sector areas can be the answered why poverty does not decrease when FDI increases. ASEAN 
has a large-scale market and has around 600 million people in ten countries. However, it is possible 
that the majority of FDI allocations are only for companies and large businesses without focusing on 
small and medium enterprises. Clearly, there is an impact in terms of employment, income from the 

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lower middle class, and the Small Medium Enterprises (SMES) sector. The SMES sector is only a 
complement to support the basic needs of large companies.  
Meanwhile for the inflation variable, the regression results show that the variable of inflation has a 
statistically positive and significant effect on poverty in ASEAN. This indicates that when inflation rises 
by one percent, the poverty rate also increases by 0.34 percent. World Bank (2020) explained that 
ASEAN countries have concerned about controlling the inflation rate to maintained at creeping 
inflation. In last ten years, ASEAN countries inflation reached below five percent per year. The inflation 
rate in ASEAN countries which is at the level of creeping inflation is caused by the policies taken by 
ASEAN countries to controlling inflation rates. Several monetary policies were taken, such as managing 
foreign capital flows, maintained currency, and creating a regulatory framework and supervision (ADB, 
2018). The level of creping inflation for ASEAN countries is still vulnerable and tends to rise to the level 
of galloping inflation (ASEAN Secretariat, 2019). This is due to two things, Firstly, the increasing price 
of goods can affect the people's purchasing power to decreasing (Talukdar, 2012). Second, the velocity 
of money from developing countries is very largest. For example, people in developing countries, 
including in ASEAN member countries, who bought for basic foods tend to be less because they did not 
have a lot of income. Although producers always produce goods to support consumer shopping on daily. 
However, their production tends to be smaller. The activity of the velocity of money in developing 
countries is too high. The monetary multiplier will increase and encourage rising national income and 
inflation to gradually lead to galloping inflation.   
The results show that the variable from exports has a positive and significant effect on poverty levels in 
ASEAN countries. Meanwhile, the variable of imports has a negative and significant effect on poverty 
in ASEAN countries. It is positive influence of exports in ASEAN countries. Many ASEAN countries are 
opening their markets and promoting foreign direct investment to increase employment and 
productivity, which are export-oriented industries and exports of goods and services (Okabe & Urata, 
2014). The exports from ASEAN countries in the industrial sector as well as goods and services have 
reached 7 percent of world exports (ADB, 2018). However, companies or businesses operating in other 
economic sectors will be affected by this activity due to a low of support. Their production was stuck 
and decrease due to low of demand. Meanwhile, the negative import sector is caused by the low supply 
chain between ASEAN countries to promoting the welfare of the people in the region.   
The role of exports for ASEAN countries has become an opportunity for economic liberalization. 
According to ADB (2018); ASEAN Secretariat (2019) stated that ASEAN is one of the most open 
regional integrations in the world. In the last five years, total exports were recorded at more than US$ 
1.2 - US$ 1.4 trillion or around 54%-55.2% of ASEAN's total GDP. In fact, ASEAN countries have 
gradually made efforts to prepare exporters to compete in the domestic and international markets. 
Operational competition policies have been well designed to support other economic policies, including 
trade liberalization. By reducing barriers to entry, competition policy also encourages the formation of 
strong supporting industries and increases the efficiency of SMEs (UNCTAD, 2019). Therefore, the 
existence of this trade openness is a good opportunity for each ASEAN country to maximize the benefits 
of increasing the export sector.  
The variable from Mean Years Schooling has a negative and significant effect on poverty levels in the 
eight ASEAN countries. When the average length of schooling increases, it has an impact on reducing 

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the poverty rate in the eight ASEAN countries by 4.41 percent. This finding is supported by the results 
of research from Afzal et al (2012); Thapa, (2015) revealed that an improved level of education has an 
impact on reducing poverty levels in Pakistan and Nepal. The negative relationship between Mean 
Years Schooling and poverty is possible because the role of ASEAN countries in driving their economies 
tends to be open. It therefore has an impact on the benefits for ASEAN from this element of 
globalization. In addition, ASEAN economic integration in the ASEAN Declaration Report (2016) 
prioritizes the role of long-term investment in education as the basis of human development. For 
example, such as cooperation between educators, promotion of educational rights and obligations, and 
partner cooperation with multilateral institutions.    
As expected, the AEC integration states that increasing human resources is very important in improving 
the quality of life of citizens as a whole. It has to ensuring effective infrastructure to deliver public 
services that provide access to quality education and good health, as well as providing people with 
needed skills (ASEAN Statistic Annual Report, 2020).   
Meanwhile, the variables of economic growth and unemployment have no significant effect on the 
poverty level in ASEAN countries. The effect of economic growth shows positive results, while 
unemployment is negatively related to poverty levels. Research from Fadillah (2021) reveals that the 
increase in per capita income in South East Asian countries has an impact on increasing income in the 
lower middle-class community in the last four decades.  
The contribution of the community to encourage economic growth in ASEAN countries. Likewise with 
the unemployment rate where the average unemployment rate in ASEAN countries reached 0.71% to 
4.4% in the last five years. The role of the government has been trying to reduce the unemployment rate 
through increasing new jobs, attracting foreign investment, opening trainings for workers. In addition, 
the AEC Blueprint explains to encourage the regional labor market in ASEAN, a Mutual Recognition 
Agreement (MRAs) has been implemented which consists of seven qualified jobs. This can be an 
opportunity but also a negative impact for human resources in ASEAN countries. It is because the 
population growth rate in ASEAN countries is projected to reach 18 percent or become more than 700 
million people. This means that the supply of labor in ASEAN countries will increase (Pavon, 2019; 
Ziegenhain, 2020). Therefore, various efforts and programs must be updated and improved by ASEAN 
countries. Especially to trengthening the resilience of macroeconomic fundamentals which can be an 
advantage, but on the other hand it can be a negative impact due to excessive inequality in ASEAN 
countries. This is because the resilience of economic fundamentals in ASEAN countries tends to be 
vulnerable.   
V. Conclusion  
This study aims to examine the effect of macroeconomic variables on poverty levels in eight ASEAN 
countries. The results show that all independent variables have a significant effect on poverty, except 
for economic growth and unemployment. The variables of FDI, inflation, and exports have a positive 
and significant effect on the poverty level. Meanwhile, the variables of Import and Mean Years 
Schooling have a negative and significant effect on poverty. The influence of this macroeconomic 
variable needs to be considered for stakeholders to taking a policy that will have an impact on the 
community in a country. In the majority of this research, the biggest influence comes from exports and 
foreign investment which causes the poverty level to tend to increase. From the findings of the study, it 

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appears that the authorities of ASEAN countries must be aware of their macroeconomic developments. 
Regardless of the benefits that will be given due to the increasing economy. However, the power and 
policies that are not objective have an impact on the widening of the number of poor people in ASEAN 
countries.  
Reference  

Afzal, M., Malik, M., E., Begum, I., Sarwar, K., & Fatima, H. (2012). Relationship among education, 
poverty and economic growth in Pakistan: An econometric analysis. Journal of Elementary 
Education, 22(1), 23-45.   

ASEAN Statistic Annual Report (2013) Association of Southeast Asian Nations Annual Report. 
Retrieved From: 
https://www.asean.org/storage/images/ASEAN_RTK_2014/8.%20ASEAN%20Annual%20Re
port%2 02013-2014.pdf  

ASEAN Declaration Report (2016) ASEAN Declaration on Strengthening Education for Out-of- School 
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