The Empirical Investigation on The Relationship of Foreign Trade, Institutions and Economic Performance of The ASEAN Nations – Conclusion and Implications

The Empirical Investigation on The Relationship of Foreign Trade, Institutions and Economic Performance of The ASEAN Nations - Conclusion and ImplicationsIt shows that accountability is not statistically significant at 5% confident interval, but more than 10%. Even so, foreign trade and other factors still play important roles in economic development of these nations. The interaction term between foreign trade and accountability is till negative but not statistically significant. It still suggests that better accountability and foreign trade push economy to grow. In the sense of statistics, it is clear that about 96% that all explanatory variables support economic growth; basically based on the F-test and P-value of the model. In this short empirical paper, the perspectives of economic cooperation and free trade agreements are described, in particular the ASEAN. The purpose of this association is not only to promote peace in the region but also to promote economic growth and social welfare. Another purpose is to enhance foreign trade in order to boost productivity growth. Therefore, some factors that may affect foreign trade such as institutional quality and financial development are reformed and improved.
Considering the panel dataset and econometric estimations such as Pooled OLS and Fixed-Effect estimations, this paper finds the results of the empirical investigation of the observed variables that foreign trade really play significantly important role to boost economic development. Not only foreign trade, but also financial development and the total stocks of institutions contribute positively significant effects on economic growth of the ASEAN nations. It is clear from the individual regression of each institutional indicator that by allowing each institutional indicator to interact with foreign trade, the effect of foreign trade and each indicator of institution are still positively significant in statistics.
Following the idea of the previous authors such North and the empirical results in this paper, the implications are to strengthen the economic institutions such as rule of law and political stability as well as government effectiveness in formulate policies and rule to facilitate and push foreign trade in order to enhance economic growth of these nations. Secondly, as the total credit size play extremely important role, it is true that the strengthening of the domestic credit size such domestic credit to private sector will jointly play role in enhancing economic development of these nations. The suggestion for further research is to conduct the empirical study whether institutions enhance foreign trade.