analyse factors of sustainable economic growth in seven southeast asian countries in 2000 2020

FOREIGN TRADE UNIVERSITYFACULTY OF INTERNATIONAL ECONOMICS---***---ECONOMETRICS 2 ASSIGNMENTMajor: International EconomicsANALYSE FACTORS OF SUSTAINABLE ECONOMIC GROWTH INSEVEN SOUTHEAST

FOREIGN TRADE UNIVERSITY FACULTY OF INTERNATIONAL ECONOMICS

-*** -ECONOMETRICS 2 ASSIGNMENT

Major: International EconomicsANALYSE FACTORS OF SUSTAINABLE ECONOMIC GROWTH INSEVEN SOUTHEAST ASIAN COUNTRIES IN 2000-2020

Credit class :KTEE318CLC.1Group : 1

Instructor : PhD Dinh Thi Thanh Binh

Hanoi, 2022

4.3.5 Cross-sectional correlation – autocorrelation 24

TABLE OF FIGURES

Table 3 Correlation matrix between

variables

16

Sustainable development is a multifaceted, cross-disciplinary concept The keytheoretical approaches of sustainability, according to Van Den Bergh (1996), includeNeo-classical economic equilibrium, evolutionary ecology, physico ecology,socio-cultural, and human ecology Similarly, physical or natural sciences such asEnvironmental Sciences, Botany, Engineering, Zoology, Biology, Geography,Economics, and Sociology are all heavily influenced by the notion Taking intoaccount each and every aspect of the concept of sustainable development is extremelydifficult, if not impossible As a result, the current report focuses solely on theeconomic components of the idea of sustainable development in general, as well as avariety of other factors Economic growth is measured by the Gross Domestic Product(GDP) GDP is defined as the total worth of all final goods and services producedinside a country's borders during a one-year period

Southeast Asian countries witnessed remarkable sustainability in economic growth.Report "Japanese FDI Trends in Southeast Asian Countries" by Prof YasuhiroYamada (2015), Representative of the Institute for East Asian Integration StudiesASEAN–Japan pointed out that Southeast Asia has been the world leader insustainable economic growth over the past three decades thanks to drastic businessenvironment reforms as well as deep integration into the world economy

A lot of work has been done on an international level to estimate the determinants onsustainable economic growth based on different approaches Muhammad Azam et al.(2015) examine the influence of environmental degradation, as measured by CO2emissions per capita, as well as several other explanatory variables such as energyusage, trade, and human capital on economic growth in China, the United States,India, and Japan Hatmanu et al (2020) look at Romanian economic growth with anemphasis on the EU business climate The study places emphasis on the relationshipbetween financial stability and sustainable economic growth

It is however interesting to note that few studies have produced conclusive results forSoutheast Asian countries Therefore, it is necessary to conduct a study on the actualstate of this region Our report selects seven countries namely Vietnam, Thailand,Laos, Cambodia, Philippines, Indonesia, and Malaysia to depict the vision ofsustainable economic growth in Southeast Asia during the period from 2000 to 2020.

Our research starts a lively conversation about the literature on sustainable economicgrowth and the factors that influence it The results would offer important insights andaid policy makers of countries to propose suitable mechanisms and policies to movethe countries towards sustainable objectives In this report, we draw attention to thescope of Southeast Asia to answer the question: “What are the determinants ofsustainable economic growth in 7 selected Southeast Asian countries in theperiod of 2000-2020?”

The plan of the paper is as follows Chapter 1 briefly discusses the overview ofsustainable economic growth in Southeast Asia, whereas Chapter 2 discusses thetheoretical framework of sustainable economic growth and empirical evidence Themethodology and model specifications are illustrated in Chapter 3 Chapter 4 showsour model estimation Then we give results and some discussions in Chapter 5.Finally, we conclude the report

During the process of working on the report, limitations are inevitable Thus, wesincerely hope to receive your comments and feedback on our work so that we canbetter our paper We would like to thank Ph.D Dinh Thi Thanh Binh for yourdedication and careful guidance for us throughout the course

CHAPTER 1: OVERVIEW OF SUSTAINABLE ECONOMIC GROWTH IN

SOUTHEAST ASIA

One of the cornerstones of sustainable development, as defined by the MillenniumDevelopment Goals, is sustainable economic growth The end of sustainabledevelopment does not imply the end of sustainable economic growth Sustainableecosystems, sustainable consumption of renewable and nonrenewable resourceswithout depriving society of future benefits, sustainable human development,sustainable investment, and innovation are among the basic principles

Our research focuses on 7 different countries in Southeast Asia: Indonesia, Cambodia,Lao PDR, Malaysia, Philippines, Thailand, and Vietnam Southeast Asia islong-known for its rich culture and fast-developing economy, especially amongASEAN members ASEAN’s GDP had been on a positive trend through the period of2000- 2019, notwithstanding the global economic crisis in 2008-2009 The region’stotal GDP in 2019 has doubled since a decade ago (USD 1.6 trillion in 2008) andalmost fivefold the value in 2000 (US$0.6 trillion) A similar trend was observed forthe ASEAN’s GDP per capita, which reached US$4,827.4 in 2019, as compared to

2010 at US$ 3,313.6, and more than four times its value in 2000 (US$1,200.3).ASEAN’s share of world nominal GDP rose from 2.5% in 2008 (the twelfth largesteconomy) to 3.7% in 2019 (the fifth largest)

The main sector of the ASEAN economy from 2005 to 2019 was the services, whichinclude commerce, government operations, communications, transportation, finance,and other economic activity not producing commodities From 46.6 % in 2005 to 50.8

% in 2019, the services sector's contribution to the region's GDP rose In contrast,throughout the same time period, the shares of the other two sectors fell Thecontribution of industry to the overall GDP in 2019 was 36.0 %, down from 39.7 % in

2005 The industry comprises manufacturing, power, gas, and water supply,construction, as well as mining, and quarrying The share of agriculture, coveringfarming, fishing, and forestry, also decreased to 10.2% in 2019 (from 12.8% in 2005)

Services were the leading sector in most ASEAN Member States The share of thesector was found to be the largest in Singapore, reaching 64.8% of the country’s totalGDP, followed by Thailand (61.7%), the Philippines (60.6%), and Malaysia (55.0%).Agriculture remained an important sector for Cambodia (16.7%), Lao PDR (14.5%),Viet Nam (13.7%), and Indonesia (12.4%).

The vibrant economies of Southeast Asia have enormous development potential aswell as significant and interconnected economic, social, and environmental issues.These difficulties are made worse by the fact that the area's existing growth strategy ismostly focused on the exploitation of natural resources Twenty percent of the totalwealth of these seven nations comes from natural capital The sustainability of theexisting development paradigm is questioned by the rate of natural capital depletion.Over the past ten years, natural capital has been declining at an increasing pace acrossthe majority of ASEAN nations, particularly in Cambodia, Lao PDR, and thePhilippines It is concerning that the pace of depletion in the area is increasing andmight eventually become unsustainable The decision that the region's leaders mustmake is whether to stick with the catastrophic grow-now-clean-up-later strategy oradopt a far-sighted green growth strategy that can sustain long-term growth withouttampering with the well-being of future generations

The COVID-19 pandemic is primarily a catastrophe for people Worldwide, there hadbeen reported 3.5 million illnesses and 250,000 fatalities by early May 2020 InASEAN, there had been recorded 35,000 infections and 1,600 deaths The pandemicresponse measures that were put in place might save lives, but they are also having awide range of economic effects and spreading economic contagion According to theIMF, global production would decline by 3% in 2020, with growth in the majority ofASEAN nations being either flat or negative However, there is a significantdifference in the predicted growth across ASEAN during this year, ranging from-2.7% in Vietnam to 6.7% in Thailand The effects of COVID-19 are hitting ASEANeconomies at a time when other risk factors, such as a global growth slowdown, werealready taking place Tourism, travel, supply chains, and the labor market are all being

affected by COVID-19 Uncertainty is driving negative sentiment All of this has animpact on trade, investment, and production, which has an impact on growth Thedomestic demand will drastically fall as a result of all these interruptions And theireffect on economic expansion will spread these issues even more.

CHAPTER 2: THEORETICAL FRAMEWORK

2.1 Theories of sustainable economic growth

The concept of "sustainable development" originally appeared in the WorldConservation Union's World Conservation Strategy, published in 1980 (IUCN 1980)

In 1987, the UN World Commission on Environment and Development published theso-called Brundtland report 'Our Common Future,' which elaborated on the concept(WCED 1987) Finally, during the United Nations World Conference on Environmentand Development (UNCED 1992) in Rio de Janeiro, national governments agreed onand confirmed the global concept of sustainable development

The concept of sustainable development has been studied over years based on theleveraging of fragmented multidisciplinary literature and multiple repositories ofknowledge concentrating on sustainable development

In the study on the concept of sustainable development, Yosef Jabareen (2006) pointedout that the conceptual analysis identifies seven concepts that together synthesize andassemble the theoretical framework of ‘sustainable development’ This paradigm isbuilt around the concept of ethical paradox In other words, the unresolved and fluidparadox of sustainability serves as the epistemological underpinning for the theoreticalframework of sustainable development The concept of natural capital shockrepresents the material side of the theoretical world of sustainability (David Pearce,Edward Bar bier, AnilMarkandya, 2000) The concept of equity represents the socialdimensions of SD (JohnPezzey, 1989) The concept of eco-form refers to the desirableecological form of urban places and communities The concept of integrativemanagement refers to a holistic and integrative approach to social development,economic progress, and environmental protection The concept of political global

agenda refers to a new global political and environmental discourse centered on theconcepts of sustainability The concept of utopianism expresses visions for humanhabitation based on SD.

Achieving sustainable economic growth has always been the goal of developingeconomic theories and strategies A theoretical contribution to growth literature,Adam Smith, who wrote "An Inquiry into the Nature and Causes of the Wealth ofNations," primarily focuses on economic growth

The "Neoclassical" growth model or "Solow-Swan" is the most widely used model toinvestigate sustainable economic growth It allows for perfect capital and laborsubstitution, which was not possible in previous models This means that the capitalproduction ratio (k), which was previously regarded as exogenous in theHarrod-Domar model, is now an important adjustment component for achieving stableequilibrium This means that a change in k would equate to a change in the stable rate,causing the economy to return to its steady state Its conclusion differs significantlyfrom previous models, claiming that countries will converge to the same level ofincome if they save, depreciate, grow their workforce, and increase productivity at thesame rate

After that, Endogenous Growth Theory was developed by Romer (1980s) However,these models have serious consequences for economic growth There is no force thatleads to an equilibrium growth rate across closed economies that is based on nationalsavings and technology Second, despite having similar populations and savings rates,there is no evidence of catch-up to rich economies On the contrary, developingeconomies may have a higher return on investment due to a lower capital-to-laborratio, but this benefit is diluted by a lack of complementary investment in educationand R&D

Most recent model was the Schumpeterian theory of innovation Technologicaladvancement, according to Schumpeter, is defined as innovation that leads to more

efficient processes and industrial activities Entrepreneurs driving this innovation arelooking for gaps in the current environment to exploit to extract rents, causing theeconomy to grow.

2.2 Empirical evidence

Data on the gross domestic product (GDP) is commonly used to gauge economicgrowth since it quantifies the total income of everyone in the economy One of themost effective strategies to support the development of the economy is to maintain asteady pace of real GDP growth The underlying elements that affect economic growthare diversified from a neoclassical perspective, based on empirical research

Based on neoclassical growth theory, Mundell (1963) and Tobin (1965) explained theimpact of inflation on economic growth They claim that when the nominal interestrate rises due to inflation, it is better to invest rather than consume This, in turn, willlead to a rise in capital accumulation, which will result in economic expansion DeGregario (1992) also examined data from 12 Latin American countries from 1950 to

1985 He discovered a negative link between inflation and growth using GeneralizedLeast Squares (GLS)

The study of Dumitrescu Bogdan Andrei, Dedu Vasile, and Enciu Adrian (2009) inRomania revealed that alongside inflation, the exchange rate, and the unemploymentrate aid in the creation of an overall image of a country's economy and degree ofdevelopment Specifically, an important macroeconomic statistic is the unemploymentrate, which indicates how efficiently an economy is utilizing its resources ArthurOkun (1962) was the first economist to investigate the empirical relationship betweenunemployment and economic growth And unemployment should have a negativerelationship with sustainable economic growth

Denton and Spencer (1997) studied the population, labor force, and sustainableeconomic growth They employed a technique called trend analysis They discoveredthat the population's average age is over 65, and their population growth rate has

slowed, owing to low fertility rates, which are expected to persist if immigrationremains at current levels The Canadian population's participation in the labor forcehas likewise decreased For the time being, the Canadian economy is reliant onimmigration to grow its labor force Mujahid and Zafar (2012) studied the EconomicGrowth-Female Labor Force Participation Nexus: An Empirical Evidence forPakistan They used time-series data from 1980 to 2010 and the ARDL method tofigure out how economic growth and female labor force participation are linked In theinstance of Pakistan, the results suggest that there is a negative significant associationbetween female labor force participation and economic growth.

Green growth, which is in line with the goals of sustainable development, is reflected

in sustainable economic growth Dale et al (2013) used life-cycle data for energyproduction to study carbon emissions and recommend environmental trade-offs in theusage of large-scale renewables in Brazil The literature on this topic reports on thelong-term link between this and economic growth (Shravani and Supran 2018).Muhammad Azam, Abdul Qayyum Khan, Hussin Bin Abdullah, and Muhammad EjazQureshi (2015) also analyzed determinants affecting sustainable economic growth andthey found that CO2 emissions and energy use illustrate significantly negativeimpacts

Using a two-sector endogenous growth model, Wong and Yip (1999) propose atheoretical model to investigate the relationship between economic growth,industrialization, and international trade Industrialization, which was represented bythe manufacturing factor, showed a positive relationship with long-term economicgrowth Eric Evans Osei Opoku & Isabel Kit-Ming Yan (2018) published their article

on drivers of sustainable economic growth in Africa in the period from 1980 to 2014.They examined data on 37 African countries Their results stated that improvingindustrialization and openness will promote economic growth in Africa using thegeneralized method of moments (system GMM) Alternative measures ofindustrialization (manufacturing and industry value addition) and subsampling studiessupport the findings

Venkatachalam Anbumozhi and Armin Bauer (2010) argued that the global financialcrisis resulted in an economic growth slowdown and that it was imperative forcountries to perform structural reforms Constantin Anghelache et al (2022) alsoshowed the significance of the crisis on economic development in their study on theCovid 19 crisis The pandemic crisis has had numerous negative economic and socialconsequences, which is why scientific research has concentrated on the impact of thecrisis on sustainable economic growth.

The goal of this report is to look at the factors that influence sustainable economicgrowth Then we lay the foundation for this report based on the above theoreticalframework and some empirical evidence above

CHAPTER 3: METHODOLOGY AND MODEL SPECIFICATION

3.1 Methodology

Our statistics are panel data Therefore, first, we test for the existence of𝑎𝑖to decidethe form of model which is whether OLS, random effect, or fixed effect In order tomake our model free from the problems, we carried out the following diagnostic tests:correlation matrix and VIF variance testing for multicollinearity, F-test to test thesignificance of variables in the model, Resset’s Ramsey method to check omittedvariables, Wald test for heteroskedasticity, Wooldridge test for autocorrelation,Pesaran's test for cross-section correlation All of them were run by STATA software

Table 1.Describe of variables

of the total labor force)

= 0

-GDP was used as a proxy for economic growth because it reflects the magnitude ofeconomic expansion for all countries over the given period of time

- CO2 (CO2 emissions)

As suggested in previous literature, in the absence of green technology or compliancewith environmental protection agency rules, CO2 emissions usually have a negativeimpact on economic growth This is consistent with the findings of Borhan et al.(2012) and Ejuvbekpokpo (2014) However, it is not in line with the findings ofBozkurt and Akan (2014) Thus the investigation of CO2 emissions is included

- CPI (inflation)

Evidence from some OECD countries by Javier Andrés and Ignacio Hernandoproposed that inflation is significant in examining sustainable economic growth.Consumer price indices are based on a sample of goods and services purchased by

consumers in a given economy It indicates changes in the cost of living for acustomer Then CPI is utilized to represent inflation in this report.

-UNEMPL (unemployment rate)

Unemployment is the main element contributing to widespread poverty and incomedisparity As a result, it is critical to comprehend the relationship betweenunemployment and economic growth in order to assure appropriate policies thatpromote economic progress The result of Makaringe, Sibusiso Clement, and Khobai,Hlalefang (2018) observing unemployment rate and economic growth indicates thatunemployment rate and economic growth have a long-term and significantrelationship

- INDUST (industrialization)

Khalid Eltayeb Elfaki, Rossanto Dwi Handoyo, and Kabiru Hannafi Ibrahim (2021)conducted a study investigating sustainable economic growth in Indonesia The studyreveals that industrialization contributes to economic growth through raising industrialoutput, encouraging innovation, and maximizing resource utilization

- LABOR (labor force)

The labor force represents both employed and unemployed individuals who arelooking for work Muhammad Shahid (2014) in his study of Pakistan, points out thatalthough there are some previous studies that expressed a positive correlation betweenlabor force participation and economic growth, his using vector error correction modelindicates the reverse However, research all concludes long-run and significantrelationships exist between the variables

- CRISIS

Considering the study of Batrancea Ioan et al (2020) on Sustainable EconomicGrowth in India, Brazil, and Romania, it is noted that Brazil had greater economicgrowth rates from 2003 to 2010, but this began to fall dramatically from 2011onwards, owing to the impact of the global financial crisis, namely from 2008 to 2009

A crisis does have an effect on sustainable economic growth but the result is notsignificant in the long run Hence, it is necessary to test its significance in selectedSoutheast Asian countries During the period in which our research is based, therehave been multiple occasions that greatly affected the economy of Southeast Asia.From 2007 to 2009, the financial crisis damaged the global economy and in 2020,COVID 19 impacted the economy of these countries Therefore in these years, thevariable CRISIS equals 1.

3.3 Data

3.3.1 Sources of data

The type of statistics is panel data which includes 147 observations with 7 countries inSoutheast Asia, namely Viet Nam, Thailand, Laos, Cambodia, Malaysia, Philippines,Indonesia, and time series from 2000 and 2020 The data of all variables (except for adummy variable) is compiled from the websites of the World Bank

3.3.2 Descriptive statistics

Table 2.Descriptive statistics

crisis 147 1904762 3940192 0 1

The statistical description gives the best overview of the variables used in the model:The above table gives the basic statistical values of each variable including the mean,standard deviation, maximum and minimum

According to the table:

● GDP per capita (GDP) has a mean of 3045.413, a standard deviation of2816.534, and a range of values spread from 300.6137 to 11432.82

● CO2 emission (CO2) has a mean of 2.410464, a standard deviation of

2.337222, and a range of values spread from 0.1625 to 8.7218

● CPI has a mean of 99.6245, a standard deviation of 28.0805, and a range ofvalues spread from 44.01604 to 168.7837

● Unemployment rate (UNEMPL) has a mean of 2.441932, a standard deviation

of 1.779762, and a range of values spread from 0.14 to 8.06

● Value added in manufacturing (INDUST) has a mean of 20.26208, a standarddeviation of 6.580631, and a range of values spread from 7.452727 to 31.95328

● The dummy variable (CRISIS) has a mean of 3.78*107, a standard deviation of3.62*107and it includes the value 0 or 1

● Labor force (LBOR) has a mean of 0.1904762, a standard deviation of

0.3940192, and a range of values spread from 2423842 to 1.36*108

3.3.3 Correlation matrix between variables

Table 3 Correlation matrix between variables

The correlation between the dependent variable and independent variables

● r(𝐶𝑂2 ,𝐺𝐷𝑃 ) = 0.9169 The level of correlation between these 2 variables is

● r(𝐼𝑁𝐷𝑈𝑆𝑇 𝐺𝐷𝑃, ) = 0.3819 The level of correlation between these 2 variables

The correlation among the independent variables:

Generally, the correlation among variables is not relatively high However, there aretwo correlations standing out between 𝐿𝐵𝑂𝑅and 𝑈𝑁𝐸𝑀𝑃𝐿(0.6580) This, then, cansignal unreliable outcomes to the model

CHAPTER 4: MODEL ESTIMATION4.1 Model selection test

xtset id year

Table 4 Identification of panel data

panel variable: id (strongly balanced)

time variable: year, 2000 to 2020

delta: 1 unit

Table 5 Model selection test

ROLS REM FEM

Hausman test for RE/FE model

Prob>chi2 = 0.000

From the hypothesis test xttest0: Prob > chibar2 = 0.0000, we can conclude that thereexist variables that affect the estimation result of the model The model using thePOLS method is not suitable

We ran the Hausman test for RE/FE model: Pro > chi2 = 0.0000, showing thedifferences between the coefficients of each model, in which FE model is the mostsuitable model for our search.

4.2 Regression results

Using the command: xtreg lngdp lnco2 lncpi lnunempl lnindust lnlbor Crisis, fe inStata, research group find the result of fixed effect regression model FE presented asfollow:

Table 6 Fixed effect model results