The impacts of exports on economic growth, the case of selected southeast asia countries

VIETNAM VIETNAM-NETHERLANDS PROGRAMME FOR MASTER’S DEGREE IN DEVELOPMENT ECONOMICS THE IMPACTS OF EXPORTS ON ECONOMIC GROWTH: THE CASE OF SELECTED SOUTHEAST ASIA COUNTRIES A thesis presented by Ha Manh Cuong In partial fulfilment of the requirements for obtaining the degree of MASTER OF ARTS IN ECONOMICS OF DEVELOPMENT Academic Supervisor Dr Le Cong Tru HO CHI MINH CITY, NOVEMBER 2012 i CANDIDATE’S CERTIFICATION I hereby certify that the paper has not been submitted in whole or in part for any degree before or has not been submitted at the time being to qualify for other degrees and any other academic award; All the contents of the paper is the outcome of works that I has done; any paid or unpaid material are acknowledged; and ethics standards as well as guidelines have been tightly followed Signed : Name Date ii ACKNOWLEDGEMENTS The thesis is a partial fulfilment of the requirements for obtaining the degree of Master of Arts in Economics of Development, which jointly conducted by Economics University of Ho Chi Minh City, Vietnam and the Institute of Social Studies in The Hague, Netherlands The thesis is fruit of knowledge I have gained and contributions from many other people First of all, I would like to show my deep thanks to my supervisor, Dr Le Cong Tru who gave me his caring instruction during the time I focused on doing the thesis and I did also learn so much from him the ways to write and prepare a research paper well I am profoundly grateful to the teachers and the staffs of the Vietnam Netherlands Project in Ho Chi Minh City who guided and helped me in the process of doing the thesis Besides, I would like to give my heartfelt thanks to Prof Nguyen Trong Hoai who taught me Econometrics and the ways to write a paper well Finally, I am very happy to express my profound gratitude to my parents who are always in my back to silently encourage and support me at anytime I got difficult and discouraged in doing the thesis I bear full responsibilities for all errors, omissions, and shortcomings in the thesis Ha Manh Cuong Ho Chi Minh City, 2012 iii TABLE OF CONTENTS CHAPTER 1.1 PROBLEM STATEMENT 1.2 RESEARCH OBJECTIVES 1.3 RESEARCH QUESTIONS 1.4 STRUCTURE OF RESEARCH CHAPTER 2.1 INTRODUCTION 2.2 CONCEPTS AND DEFINITIONS 2.3 THEORETICAL FRAMEWORK CHAPTER 3.1 INTRODUCTION 3.2 EMPIRICAL MODEL 3.3 METHODOLOGY AND DATA COLLECTION 3.4 DESCRIPTION OF VARIABLES 3.5 SUMMARY OF THE STEPS USED IN THIS STUDY CHAPTER 4.1INTRODUCTION 4.2SELECTION REASON OF FIVE ASIAN COUNTRIES 4.3HIGHLIGHTS OF EXPORT ACTIVITIES AND SOURCES OF EXPORT GROWTH OF ASEAN-5 OVER THE LAST DECADES 4.3.1 Eco 4.3.2 Ex 4.3.3 growth Co 4.3.4 Eco 4.3.5 Ex 4.3.6 growth Co 4.3.7 Eco 4.3.8 Ex 4.3.9 Co iv 4.4 growth 4.3.10 E 4.3.11 E 4.3.12 growth C 4.3.13 E 4.3.14 E 4.3.15 growth C SUMMARY CHAPTER 5.1 INTRODUCTION 5.2 DESCRIPTIVE ANALYSIS 5.3 5.2.1 C 5.2.2 D REGRESSION RESULTS AND ANALYSIS 5.3.1 R 5.3.2 R 5.3.3 R 5.3.4 R 5.3.5 R CHAPTER 6.1 CONCLUSION 6.2 POLICY RECOMMENDATIONS 6.3 6.2.1 F 6.2.2 F LIMITATIONS OF THE THESIS APPENDIX A APPENDIX B APPENDIX C APPENDIX D v LIST OF FIGURES Figure 3-1: Analysis framework for the impact of exports on growth 19 Figure 3-2: Summary of steps used in data analysis 20 Figure 4-1: GDP growth of Vietnam in the period of 1991 - 2010 .23 Figure 4-2: Export growth of Vietnam in the period of 1991 - 2010 26 Figure 4-3: GDP growth of Malaysia in the period of 1991 - 2010 27 Figure 4-4: Export growth of Malaysia in the period of 1991 - 2010 29 Figure 4-5: GDP growth of Thailand in the period of 1991 - 2010 32 Figure 4-6: Export growth of Thailand in the period of 1991 - 2010 36 Figure 4-7: GDP growth of Indonesia in the period of 1991 - 2010 .38 Figure 4-8: Export growth of Indonesia in the period of 1991 - 2010 40 Figure 4-9: GDP growth of Singapore in the period of 1991 - 2010 42 Figure 4-10: Export growth of Singapore in the period of 1991 - 2010 45 vi LIST OF TABLES Table 2-1: Summary of researches studying on impact of exports on growth 13 Table 3-1: Summary of variables in the model 18 Table 4-1: Vietnam exports by sector, 2010 25 Table 4-2: Malaysia exports by sector, 2010 29 Table 4-3: Thailand exports by sector, 2010 34 Table 4-4: Indonesia exports by sector, 2010 39 Table 4-5: Singapore exports by sector, 2010 .44 Table 5-1: Correlation matrix of variables (all countries) .49 Table 5-2: Summary of Descriptive Statistics (All countries) 52 Table 5-3: Regression Results (Fixed Effects Method with Dependent Variable: GDP growth rate) vii 53 The Impacts of Exports on Economic Growth: The Case of Selected Southeast Asia Countries ABSTRACT The thesis aims to answer the question that how is exports affect on the economic growth in the five selected Southeast Asia countries, including Indonesia, Malaysia, Singapore, Thailand and Vietnam, during the period of 1991-2010 by using the neoclassical growth model established by Romer (1986) and Lucas (1988) In the period of 1991-2010, economic growth of the five Southeast Asia countries were growing very fast in tandem with the strong growth of exports This is because the economies of the five Southeast Asia countries largely relied on trade activities, especially exports, with developed countries such as USA, Japan, and European countries, etc… Therefore, determining and examining the impact of exports on economic growth are important to help these countries keep their growth sustainable In this paper, the augmented Solow Growth Model was adopted to find the impact of exports on growth Also, the key model employed to run regression is Linear Exports-Growth Model with a panel data of the five Southeast Asia countries To capture the different impact of exports on growth over the selected countries, fixed effect regression model is chosen to apply in the paper The main findings of the paper point out that only Malaysia, Singapore and Thailand of which exports have statistically significant positive impacts on economic growth at the levels of significance of 1%, 1% and 10%, respectively Oppositely, Indonesia and Vietnam showed a negative impact on economic growth, however, these impacts were not statistically significant In addition, to measure and compare the different impacts of exports on growth over the selected countries, the fixed effect regression model is employed The results showed that the more developed the economy is, the stronger impact of exports on economic growth is More specifically, the impact levels of exports on growth at the five selected Southeast Asia countries are ascendingly arranged based on development of the economy as follows: Vietnam (-0.029%), Indonesia (-0.016%), Thailand (0.151%), Malaysia (0.196%) and Singapore (0.495%) Chapter INTRODUCTION 1.1 PROBLEM STATEMENT Economic growth is often the final goal of the economy To accelerate economic growth, it is vital to know where sources of economic growth come from and this is subject of controversy amongst economists One side, economists such as Solow (1957), Romer (1986), and Lucas (1988) reckoned that TFP laying residual brings about growth in long term Romer (1986) emphasized research and development while Lucas (1988) stressed on role of human capital formulation as significant cause of growth Trade far ago was an effective way that human being used to exchange products they had and received other essential products that they were unable to produce to meet their daily life Trade at that time played a vital role as a blood vent in a human body and was the best way that human being had in daily life, production activities and social development Nowadays, the importance role of trade in modern society and economy is significantly increasing, especially exports Exports have helped many countries reach impressive economic growths and become very rich and powerful countries such as Japan, China, Korea and Taiwan, etc From the origin of theories of reputable economists with classical school thoughts in hundreds of years ago such as: Adam Smith (1776) and David Ricardo (1817), and being connected recently by a series of theoretical works of other well-known economists Misselden (1623) subsidies to encourage domestic investment Controlling well and tightly investment capital is very vital to help using capital efficiently and avoid waste and loss of capital by corruption and bribe Finally, quality of labor force is very important Vietnam should have more supports for training and enhance in both quantity and quality of labor force In addition, Government should also have proper policies of vocational education and training focusing on key high technical and technological industries for exports This will help and benefit Vietnam to have a skilled and talented manpower to develop and get sustainable growth 6.3 LIMITATIONS OF THE THESIS There is a limitation that the paper have not obtained regarding the second objective: comparison of the impact of exports on growth crosss the selected countries That is because both export growth and labor growth of Indonesia and Vietnam are insignificant and have no statiscal meaning, therefore the measure impact of these countries met difficulty and the comparison cross the selected countries are limited Not enough data for Vietnam has made the study choose the panel data of five ASEAN countries including Indonesia, Malaysia, Singapore, Thailand and Vietnam in order to reach a more reliable outcome It is expected to conduct a study on impact of exports on economic growth only for the case of Vietnam later At the same time, the causal relationship between exports and growth and thresholds effect between exports and growth are also recommended for the future studies 64 REFERENCES Aghion, D., and Howitt, P 1992 A Model of Growth through Creative Destruction Econometrica 60 (March) Al-Yousif, Y K 1999 On the Role of Exports in the Economic Growth of Malaysia: A Multivariate Analysis International Economic Journal, Vol 13, No Balassa, B 1978 Exports and economic 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Method: Pooled EGLS (Cross-section SUR) Date: 07/11/12 Time: 16:50 Sample: 1991 2010 Included observations: 20 Cross-sections included: Total pool (balanced) observations: 100 Linear estimation after one-step weighting matrix Var _IDN-_MYS-_SGP-_THA-_VNM-_IDN-_MYS-_SGP-_THA-_VNM-_IDN-_MYS-_SGP-_THA-_VNM-Fixed Effe _ID _MY _SG _TH _VN Cross-section fixed (dummy variables) R-squared Adjusted R-squared S.E of regression F-statistic Prob(F-statistic) R-squared Sum squared resid 68 APPENDIX B Test Heteroscedasticity by White test approach Table B.1: Test Heteroscedastiscity with White test method of Indonesia White Heteroskedasticity Test: F-statistic Obs*R-squared Table B.2: Test Heteroscedastiscity with White test method of Malaysia White Heteroskedasticity Test: F-statistic Obs*R-squared Table B.3: Test Heteroscedastiscity with White test method of Singapore White Heteroskedasticity Test: F-statistic Obs*R-squared Table B.4: Test Heteroscedastiscity with White test method of Thailand White Heteroskedasticity Test: F-statistic Obs*R-squared Table B.5: Test Heteroscedastiscity with White test method of Vietnam White Heteroskedasticity Test: F-statistic Obs*R-squared 69 APPENDIX C Figure C.1: Scatter diagram: Exports vs Growth of Indonesia GGDP_MYS GK IDN Scatter Diagrams with the correlation among GDP Growth Rates and Exports Figure C.2: Scatter diagram: Exports vs Growth of Malaysia 70 GGDP_SGP GGDP_THA Figure C.3: Scatter diagra m: Exports vs Growth of Singap ore Figure C.4: Scatter diagram: Exports vs Growth of Singapore 10 Fig ure C 5: Sc atter diagram: Exports vs Growth of Vietnam 71 APPENDIX D Scatter diagrams with all variables in the model of the countries 36 32 GK_IDN 28 24 20 EGIDN 16 12 -15 -10 44 -5 GGDP_IDN 40 Figure D.1: Scatter diagrams with the variables in the model of Indonesia 36 GK_MYS 32 28 24 20 16 12 -8 40 36 GK_SGP 32 28 -4 GGDP_MYS 24 Figure D.2: Scatter diagrams with the variables in the model of Malaysia 20 16 12 -4 Fig ure D.3: Scat ter diag ram s with the vari able s in the mod el of Sin gap ore 72 44 40 GK_THA 36 32 28 24 20 -15 -10 -5 GGDP_THA Figure D.4: Scatter diagrams with the variables in the model of Thailand 45 40 GK_VNM 35 30 25 20 15 10 GGDP_VNM Figure D.5: Scatter diagrams with the variables in the model of Vietnam 7 ... The Impacts of Exports on Economic Growth: The Case of Selected Southeast Asia Countries ABSTRACT The thesis aims to answer the question that how is exports affect on the economic growth in the. .. OBJECTIVES The key goals of the thesis are to: (1) To determine the impact of exports on economic growths of the selected Southeast Asia countries (2) To examine the difference in the impact of exports. .. the period of 1991-2010, economic growth of the five Southeast Asia countries were growing very fast in tandem with the strong growth of exports This is because the economies of the five Southeast