402 © 2025 AESS Publications. All Rights Reserved. Impact of remittances, foreign direct investment and gross capital formation on economic growth in Timor-Leste: Strategies for sustainable development Fernando Anuno 1+ Cristovao dos Reis 2 Bia Carvalho Jesus 3 Feliciano Quintas do Céu 4 1 Department of Management, Faculty of Economics and Management, National University of Timor Lorosa'e, Díli 10000, Timor-Leste. 1 Email: fernando.anuno@untl.edu.tl 2,3 Department of Economics, Faculty of Economics and Management, National University of Timor Lorosa'e, Díli 10000, Timor-Leste. 2 Email: cristovaodosreis2014@gmail.com 3 Email: lebi241107@gmail.com 4 Department of Tourism, Faculty of Tourism, Arts, Industries Creatives and Cultures, National University of Timor Lorosa'e, Díli 10000, Timor-Leste. 4 Email: felicianoqceu@ua.pt (+ Corresponding author) ABSTRACT Article History Received: 25 March 2025 Revised: 17 July 2025 Accepted: 8 August 2025 Published: 12 September 2025 Keywords Economic growth FDI GCF Remittances Timor-Leste Sustainable Development. JEL Classification: O47; F21; E22; F24; O53; Q01. Timor-Leste is highly dependent on oil, and diversification of productive sectors is essential for attracting foreign direct investment (FDI) and remittances as contributions to GDP. This study analyzes the impact of remittances, FDI, and gross capital formation (GCF) on economic growth in Timor-Leste, with a focus on sustainable development strategies. Using an autoregressive distributed lag (ARDL) model, the analysis investigates short- and long-term dynamics among these critical economic indicators: remittances, FDI, GCF, and GDP growth from 2006 to 2023. The findings indicate that while FDI exerts a negative long-term impact on GDP, it plays a positive role in the short term. In contrast, GCF significantly increases economic growth in the long term. However, remittances do not have a significant impact on GDP in either the short or long term. Furthermore, Granger causality tests confirm that FDI significantly predicts GDP growth, emphasizing its crucial role in the economic development of Timor-Leste. Based on these insights, this study outlines strategic policy recommendations to enhance the effectiveness of FDI and capital formation in driving sustainable economic growth. These suggestions include targeted policies to boost FDI inflows and strengthen GCF, such as improving infrastructure, strengthening institutional frameworks, and promoting diversification of key sectors. By aligning investment strategies with the Sustainable Development Goals, Timor-Leste can reduce its reliance on oil and achieve more robust economic growth. These insights provide valuable guidance to policymakers and decision-makers seeking to leverage FDI and capital formation for long-term prosperity. Contribution/ Originality: This paper analyzes the impact of FDI, GCF, and remittances on Timor-Leste's economic growth. Both short-term and long-term dynamics are studied using ARDL modeling (2006–2023). The results show that FDI promotes short-term growth but has a negative effect on long-term GDP. In the long run, growth is boosted by GCF, while remittances have little impact. Foreign direct investment is significant as it predicts GDP growth. The report contains policy proposals for the sustainable development of Timor-Leste. 1. INTRODUCTION The United Nations 2030 Plan emphasizes migrant workers' remittances as vital for poverty reduction and for contributing to the achievement of the 17 Sustainable Development Goals, with indicator 17.3.2 explicitly aiming to increase the share of GDP from migrants (Kratou, Pillai, & Sharif, 2024). Remittances from migrant workers can Asian Journal of Economic Modelling ISSN(e): 2312-3656 ISSN(p): 2313-2884 DOI: 10.55493/5009.v13i3.5576 Vol. 13, No. 3, 402-418. © 2025 AESS Publications. All Rights Reserved. URL: www.aessweb.com