Academic journal article International Journal of Business and Society

Impact of Foreign Direct Investment, Imports and Tariff Deregulation on Exports among Pioneering Asean Members: Panel Data Analysis

Academic journal article International Journal of Business and Society

Impact of Foreign Direct Investment, Imports and Tariff Deregulation on Exports among Pioneering Asean Members: Panel Data Analysis

Article excerpt

(ProQuest: ... denotes formulae omitted.)

1. INTRODUCTION

The Association of Southeast Asian nations (ASEAN) was formed in 1967 with the pioneering members of Indonesia, Malaysia, Philippines, Singapore and Thailand in 1967 as a security organization to ward of the threat of communism that became apparent from communist Vietnam, and later Cambodia and Laos. However, as Vietnam became entrenched as a communist nation the focus of ASEAN shifted increasingly towards economic interests. The transformation became formal when the five pioneering members and Brunei formed the ASEAN Free Trade Area (AFTA) in 1992. Foremost in the arrangement was a vigorous but joint effort to deregulate and streamline tariff procedures among members so as to stimulate trade and foreign investment. Vietnam, Cambodia, Laos and Myanmar subsequently joined to AFTA process.

Also, important is the leading role played by the pioneering ASEAN members, whim henceforth we refer to as ASEAN-5, to switch from import-substitution to export orientation as the engine of growth since 1965 by Singapore, 1970 by Malaysia and the Philippines, since 1980 by Thailand, and 1990 by Indonesia. Singapore pursued exportorientation once it left the Malaysia coalition in 1965. Although some of the countries, especially Malaysia and Indonesia did continue with import-substitution in heavy industries, the prime driver of economic growth in these countries had already become export-orientation. Indeed, export-processing zones mushroomed in the ASEAN since the 1970s.

In a previous paper we examined the impact of the AFTA process on foreign direct investment (Asirvatham, Rasiah and Adamu, 2016). In this paper, we seek to investigate the determinants of trade in the pioneering five ASEAN. Using the macroeconomic variables of imports, foreign direct investment and aggregate tariffs, and panel data of the five countries over the period 1970-2015 we seek to examine the determinants of exports in these countries. The rest of the paper is organized as follows. Section 2 reviews the extant literature on exports and the variable that cause it. Section 3 discusses the methodology and data used. The results and analysis follow next. The paper finishes with the conclusions finally.

2. THEORETICAL CONSIDERATIONS

Exports are generally accepted as a key determinant of GDP. However, for a number of decades there was dispute over whether GDP can be best stimulated through importsubstitution or export orientation. India (till the 1990s), China (till 1978), Russia (till 1991) and Cuba took import substitution as their prime strategy to stimulate GDP growth and structural change. There is consensus now that export-orientation at some point or in some form is critical to provide the market and competition to evolve competitiveness alongside GDP growth. Hence, the focus on the paper on exports.

Given that the pioneering five ASEAN members have sought to introduce and strengthen instruments to stimulate exports, it is worthwhile examining the variables that influence it. Indeed, tariffs in these countries have fallen since 1970, and especially since the introduction of AFTA. The macroeconomic variables generally considered to influence export growth are tariffs, imports and foreign direct investment. In this section we explain the theoretical rationale for the inclusion of these variables as factors that influence exports.

2.1. Exports

Building on Smith's (1776) notion of the division of labour being shaped by the size of the market, and the converse being equally right, Hirschman (1958) had argued that forward linkages within the national economy are not important as exports offer the scale and scope for the development of backward linkages. Indeed, Hirschman (1970) argued that nascent developing economies typically start with low backward linkages when investment (including foreign) occurs. Amsden (1983) used the machine tool industry in Taiwan to show evidence of the positive effect of the division of labour and markets on each other. …

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