Are Imports and Exports of the Five ASEAN Economies Co-Integrated? an Empirical Study

Article excerpt

This paper aims to investigate the presence ofa unique equilibrium relationship between imports and exports of the five ASEAN founding economies. The unit root and cointegration approaches were used for analysis. The presence ofa long-run relationship among imports and exports of a country indicate favorable of macroeconomic policies being effective in correcting external imbalance in long-run. The results show that the imports and exports of Malaysia and Singapore are cointegrated. However this situation is not happened for the Philippine, Indonesia, and Thailand.

I. Introduction

This study aims to investigate the effectiveness of macroeconomic policies on the five founding members of ASEAN (The Association of Southeast Asian Nations), in bringing their imports and exports into a long-run equilibrium. They are Indonesia, Malaysia, the Philippines, Singapore and Thailand. Bahmani-Oskooee and Rhee (1997, p. 109) stated that exchange rate policy in any country is always accompanied by other macroeconomic policies (fiscal or monetary), it finds to be difficult to assess the effects of one policy without controlling for the others. Thus, the combined effects of all policies on the trade balance are considered. The presence of a long-run relationship among imports and exports of a country might indicate that the macroeconomic policies as well as devaluation can be possible implemented in order to correct the trade imbalance. Previous studies of this issue are limited. They are Bahmani-Oskooee (1994) and Bahmani-Oskooee and Rhee (1997) for the case of Australia and Korea, respectively.

Most of the ASEAN five founding countries have always experienced current account deficit of its balance of payments. Observing the period 1970 to 1998, Malaysia was faced current account deficits in the year of 1971 to 72, 1974 to 75, 1980 to 86, and 1990 to 97. Meanwhile, Thailand was more trouble of her current account balance condition with only enjoyed a surplus in the year of 1986 and 1998. The Indonesia's current account achieved a surplus in the year of 1974, 1979 to 80, and 1998. In addition, a surplus recorded for the Philippines were only in the year of 1972 to 73, 1986 and 1998. Singapore is experiencing surplus of current account since 1986 (data are obtained from International Financial Statistics, International Monetary Fund). …