Effect of Interest Rate Spread on Economic Growth of Thailand
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Abstract
Objective of this research is to examine the influence of interest rate spread on economic growth in Thailand. Economic growth is assessed using growth rate of real GDP per capita over period spanning from 1977 to 2021. Both long-run and short-run effects are
analyzed. Study employs Engle-Granger Cointegration analysis for long-run analysis and Error Correction Model for short-run analysis. The findings from the research indicate that interest rate spread has a negative impact on the long-run growth rate of real GDP per capita. This suggests that when interest rate spread is high, it adversely affects the economic growth of Thailand in the long run. A 1 percent increase in interest rate spread corresponds to a significant 1.5334 percent decrease in real GDP growth per capita. This relationship holds true for both long-run and short-run effects. Therefore, the impact of interest rate spread on real GDP growth
per capita remains consistent, irrespective of the time horizon considered. Furthermore, the study reveals that domestic saving positively affects the economic growth in both the long run and short run while the working-age population, international trade level, and labor force participation primarily influence the economic growth only in the long run. The findings from this research clearly suggest that a decrease in interest rate spread will be a vital tool to effectively stimulate the economic growth.
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