Exports and Economic Growth in ASEAN Countries: Evidence from Panel Data Analysis

Article excerpt

This study employs panel data analysis to examine the relationship between exports and economic growth in five ASEAN (Association of South East Asian Nations) countries (i.e., Malaysia, Indonesia, the Philippines, Singapore and Thailand). Three separate methods have been used: (1) Pooled Ordinary Least Squares (OLS), (2) One-way fixed/random effects, and (3) Two-way fixed/random effects. Empirical results show that the one-way fixed effects analysis is the best model among all the models. As the one-way fixed effects model shows, there exists a significant positive relationship between exports and economic growth in the five ASEAN nations. Panel cointegration test, however, implies that there is no cointegrating relationship between these two variables.

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Introduction

With conspicuous imbalance in the distribution of wealth between the 'have' and 'have-not' nations, an important question for development economists remains: How can poor nations break free from the 'vicious circle' of poverty and boost the much-needed economic growth? Or, in other words, what could be their 'engine' of growth?

One of the most viable development strategies for a country's economic success is to find its own niche in the global marketplace, which means to be able to tap the demands of the world economy. Many developing countries have been trying to overcome a dismal economic situation by promoting international trade. In these efforts, exports have been viewed as 'engine' of economic growth. In recent decades, the validity of export-led growth strategy has been supported by impressive success stories from Asian countries.

Japan's remarkable performance in the global export market in the 1960s was repeated in the 1970s by Asian Newly Industrializing Economies (NIEs) and, in the 1980s, by a few ASEAN (Association of South East Asian Nations) countries. China's recent economic success has highlighted the importance of exports in boosting a nation's economic development. Till the end of the 1970s, China's doors were closed to foreigners, and the country was in the grip of economic stagnation and pervading poverty. Since the introduction of the 'open-door policy' in the end of the 1970s, China has been experiencing a very rapid economic growth.

Malaysia, Indonesia, the Philippines, Singapore and Thailand-the five ASEAN countries chosen as case studies in the current inquiry-also provide a good example of economic success because they were able to find their own niche in the global economy. Though all of these economies have been export-driven, there are differences in terms of each country's main export commodities. Among these five ASEAN nations, Singapore could be placed at one end of the scale as its exports consist mostly of manufactured goods, while Indonesia could be placed at the other end since it exports mainly primary commodities (e.g., petroleum, plywood and rubber).

On the other hand, Malaysia and Thailand occupy a position somewhere in the middle as they export both primary commodities and manufactured goods. Thailand's exports include automobiles, electronic parts and rice, and the main bulk of Malaysia's exports are electronic components, petroleum, Liquefied Natural Gas (LNG) and palm oil. The Philippines found its niche in the export of labor. The country relies heavily on the remittances that the Filipino workers send home. In 2005, immigrants from the Philippines sent more than $10 bn back home, which accounted for 13.5% of the country's Gross Domestic Product (GDP).1

Although quite a number of developing countries have adopted export-driven development strategy, systematic empirical research on the relationship between a country's exports and its economic growth is still lacking. To address this issue, this study chooses five ASEAN countries (i.e., Indonesia, Malaysia, the Philippines, Singapore and Thailand) to examine the relationship between exports and economic growth. …