Interlocking Global Business Systems: The Restructuring of Industries, Economies and Capital Markets

By Edward B. Flowers; Thomas P. Chen et al. | Go to book overview
indication of the robustness of the results is that no serial correlation was found after the lag length has been chosen by SIC.Because openness is always regarded as one of the important variables which influences growth rates ( Frankel and Romer, 1996), the stationarity of the openness series is also of interest. Table 1.3 shows the time series properties of openness for the selected East Asian economies. A strong time trend is evident in the series. The ADF test reveals that the data-generating process of the openness series is not stationary.Taking all these results into consideration, we have a clear picture of the time series properties of growth rates, investment rates and openness. The growth rates of selected East Asian economies experienced little permanent changes during the sample period. The ADF test reveals that the growth rate sequence is systematically stationary in these economies. The economic implication of a stationary sequence for the growth rate is that permanent changes in other variables do not have a permanent effect on the growth rate. Shocks to the growth rate may have short run effects, but eventually, the growth rate will return to its unconditional mean. In contrast, investment rates for the selected East Asian economies exhibit a strong positive trend in the sample period. The ADF test also reveals that the investment rate sequence and the openness sequence are not stationary. One simple interpretation of these nonstationary time series sequences is that changes in these variables are permanent. The series will not revert to its unconditional mean.Our discussion of the AK type endogenous growth model showed that what this kind of model predicts is that permanent changes in some X variables that are potentially affected by government policy will lead to permanent changes in growth rates. But the empirical results in selected East Asian economies show that growth rates do not experience permanent change in the sample period. This may suggest two cases, as argued by Jones ( 1995), either:
a. X must exhibit no large persistent movements, or
b. some other variable (or variables) must also have persistent effects on growth that offset the movements of X in a way that is determined by the endogenous growth model.

It is difficult to think of a variable that could offset the positive effect of investment rates. Therefore it is obvious that permanent changes in investment rates do not have a permanent effect on the growth rate. Case 1 does not require testing, since only investment rates are nonstationary. Case 2 becomes the empirical result of this study. It becomes clear that time series tests do not provide any evidence to support the endogenous growth model, at least in the experience of newly industrialized economies (NIEs) and the Association of Southeast Asian Nations (ASEANs).


SUMMARY AND CONCLUSION

Time series tests for growth rates, investment rates and for openness have been conducted for the NIEs and ASEAN economies. The results show that there is little permanent change in the growth rates of these economies. The

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