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

The empirical result from the baseline regression equation is presented in the following table. Based on the result in Table 2, it appears that while controlling gross fixed capital formation and economically employed labor in economy, foreign trade effect as a whole does play extremely roles in economic development of the ASEAN nations. It is about 96% that all of these factors play roles on the economic growth. The coefficient of foreign trade is positively significant at about 1% confident interval, holding other variables fixed. It also seems that foreign trade has contributed so much more than the other variables in the model; basically based on its coefficient of 0.67, which is larger than those of other variables. This strongly suggest that if foreign trade of the ASEAN nations increases about 1% change, the economy of these nations will grow about 0.67%, holding other variables constant. This baseline regression also shows that institutional quality really plays roles in economic development of these nations. Actually, its coefficient is positively significant; suggesting the result that countries with better institutions will grow faster those of least-developed institutions. It is clear that if these countries can strengthen their institutional stocks, just one unit measurement, their economy will grow about (100(0.032)) or 3.2 %. This is really true, but it is also hard to achieve 1 unit increase in quality of institutional stocks. Domestic credit also plays positively significant roles in economic growth of these countries at less than 5% confident interval. It strongly shows that if these countries can strengthen their domestic credit size 1% point change, the economy will grow about (100*0.0007899) or about 0.08 %.
In this section, the results whether foreign trade effect on economic growth of these nations has changed over times are presented from the result of the regression. The empirical evidence from Table 3 shows that while controlling gross-fixed capital formation and economically employed labor, foreign trade still plays important roles in economic development of the ASEAN nations. The Huasman Test supports that this fixed-effect model is very applicable to this regression model and goodness-of-fit, R2 shows that 95% that the all the explanatory variables jointly explain the economic development. We can see from the table that at the beginning of the eighteen century, foreign trade did not play significant role on economic development of these countries even though it still has positive relationship on these countries’ economy. However, it has started to play significant roles since 1984. Moreover, this effect has changed larger and larger, in particular after the time when AFTA was launched in 1992. The ASEAN crisis in 1997 made foreign trade to grow slowly, unlike the years before and after. The result of individual institutional indicator is presented in this section. The role of government effectiveness in economic development is presented in the above table 4. It appears from this table that the quality of public services, the quality of civil services and the degree of independence from political pressures play important roles in economic development since the coefficient of Government Effectiveness is positively significant. Moreover, the joint roles between foreign trade and government effectiveness are also beneficial to economy of these nations based on the coefficients of foreign trade, while government effectiveness and their interaction term are all positively significant. It reveals that about 97% that all of the explanatory variables explain economic growth of these nations. The result in table 5 reveals that the model is very applicable with its F test and P-value, and it is about 97% that all explanatory variables put into the model explain to the economic growth. The results suggest that the better quality of institution and the larger foreign trade push the economy to grow faster; basically because the coefficients of foreign trade, those of rule of law and interaction term are statistically significant. The result in table 6 is somewhat similar to those in the previous tables. Political stability really plays importantly and positively significant roles in economic growth. A more stability of politics pushes countries to trade more and enhance high growth too. Actually it is clear that the marginal impact of a reduction of political instability on economic growth is larger the larger foreign trade. It is statistically shows that about 97% of these explanatory variables support economic growth of these nations. Table 7 reveals the results which is somewhat a little different from the previous ones.

Table 1. Descriptive Statistics of Selected Variables

Variables Obs Mean Std. Dev. Min Max
Real GDP 302 55300000000 56600000000 735000000 274000000000
Domestic Credit
Provided by
Banking Sector 257 58.16 42.57 0.00 177.58
Domestic Credit
Provided to
Private Sector 256 50.26 42.32 0.00 165.72
Rule of Law 150 -0.21 0.88 -1.65 1.76
Trade 286 90100000000 134000000000 160000000 823000000000
Government
Effectiveness 150 0.02 1.01 -1.67 2.37
Political
Stability 150 -0.27 0.97 -2.13 1.36
Accountability 150 -0.73 0.73 -2.22 0.52
Capital Stock 277 136364.20 157585.10 217.02 740039.70
Labor Force 310 22300000 26400000 69203 119000000

Table 2. Baseline Regression Result, Pooled OLS, Dependent Variable: log (GDP)

Variables Coefficient P-value
Log(Labor) 0.0917848*(0.0414533) 0.0280
Log(Capital) 0.1794131***(0.0424101) 0.0000
Log(Trade) 0.671417***(0.0270214) 0.0000
Institutional Stocks 0.0324513**(0.0110358) 0.0040
Domestic Credit 0.0007899*(0.0003671) 0.0330
Constant 4.373783***(0.6599635) 0.0000
Legend: *p<0.05; ** p<0.01; *** p <0.001
N = 146 F = 1208.17, Prob > F= 0.0000 R2 = 0.9680

Table 3. Time Fixed-Effect Regression Result

Dependent Variable: Log(GDP)
Standard
Coefficients Error P-value
Log(Capital) 0.0257325 0.0224684 0.055
Log(Labor) 0.0744356 0.1508287 0.052
Log(Trade) 0.2409508*** 0.0286448 0.000
Time Dummies
1981 .0390853 0.0746652 0.601
1982 .0813141 0.0753406 0.282
1983 .1305875 0.0761693 0.088
1984 .18536473* 0.0743604 0.013
1985 .17458368* 0.0754342 0.022
1986 .23459641** 0.077715 0.003
1987 .25037264** 0.0780643 0.002
1988 .27415679*** 0.0810166 0.001
1989 .38074812*** 0.0793142 0.000
1990 .39888269*** 0.0825508 0.000
1991 .40818565*** 0.0859388 0.000
1992 .42174306*** 0.0883077 0.000
1993 .42055279*** 0.0918162 0.000
1994 .43672603*** 0.0957448 0.000
1995 .44921443*** 0.1005505 0.000
1996 .47956632*** 0.1050234 0.000
1997 .51022429*** 0.1082985 0.000
1998 .52262363*** 0.1098798 0.000
1999 .55466122*** 0.1138275 0.000
2000 .5706314*** 0.1183606 0.000
2001 .58897614*** 0.1214753 0.000
2002 .62127162*** 0.1244166 0.000
2003 .64946962*** 0.1272866 0.000
2004 .6707457*** 0.1315729 0.000
2005 .69592993*** 0.1354411 0.000
2006 .71387679*** 0.1398929 0.000
2007 .74501586*** 0.1440645 0.000
2008 .74977165*** 0.1488526 0.000
2009 .78859057*** 0.1501382 0.000
2010 .80296794*** 0.1527895 0.000
Constant 16.332549*** 2.446149 0.000
N = 269, R2 = 0.95
F= 112.32 Prob > = 0.0000
Huasman Test: chi2 = 439.55 Prob>chi2 = 0.0000
Legend: * p<0.05; ** p<0.01; *** p<0.001

Table 4. Government Effectiveness, Foreign trade, and Economic Growth

Dependent Variable: Log (GDP), Method: Pooled OLS
Coefficient Std. Error P-value
Log(Labor) 0.2101037*** 0.047857 0.000
Log(Capital) 0.0618753 0.035591 0.084
log(Trade) 0.6653656*** 0.026138 0.000
Domestic Credit 0.0010482** 0.000342 0.003
Government Effectiveness 2.732238*** 0.409354 0.000
Interaction Term -0.1056849*** 0.014174 0.000
Constant 4.082585*** 0.456828 0.000
N = 146, F = 1555.11, P-value = 0.0000 R2 = 0.97
Legend: * p<0.05; ** p<0.01; *** p<0.001

Table 5. Rule of Law, Foreign Trade and Economic Growth

Dependent Variable: Log (GDP), Method: Pooled OLS
Coefficients Std. Err. P-value
Log(Labor) 0.2173049*** 0.038131 0.00000
Log(Capital) 0.0534987 0.039273 0.17500
log(Trade) 0.6445999*** 0.026225 0.00000
Domestic Credit 0.001092** 0.000369 0.00400
Rule of Law 3.097657*** 0.438653 0.00000
Interaction -0.1194219*** 0.015575 0.00000
Constant 4 59992*** 0.479828 0.00000
N = 146, R2 = 0.97, F = 1545.33 P-value = 0.0000
Legend: * p<0.05; ** p<0.01; *** p<0.001

Table 6. Political Stability, Foreign trade, Economic growth

Dependent Variable: Log (GDP) Method: Pooled OLS
Coefficient Std. Err. P-value
Log(Labor) 0.115363*** 0.021961 0.000
Log(Capital) 0.079753** 0.028356 0.006
Log(Trade) 0.691355*** 0.025776 0.000
Domestic Credit 0.000182 0.00038 0.633
Political Stability 1.902625*** 0.34577 0.000
Interaction -0.08312*** 0.014098 0.000
Constant 4.535754*** 0.475305 0.000
R2 = 0.97, F = 1236, Prob>F = 0.000
Legend: * p<0.05; ** p<0.01; *** p<0.001

Table 7. Accountability, Foreign Trade and Economic Growth0

Dependent Variable: Log (GDP), Method: Pooled OLS
Coefficient Std. Err. P-value
Log(Labor) 0.199458*** 0.020489 0.0000
Log(Capital) 0.05651 0.041078 0.1710
log(Trade) 0.652181*** 0.043454 0.0000
Domestic Credit 0.001009* 0.000397 0.0120
Accountability 1.151768 0.77653 0.1400
Interaction -0.0414 0.031215 0.1870
Constant 4.644276*** 0.937017 0.0000
N = 146, R2 = 0.96, F = 708.9, Prob>F = 0.000
Legend: * p<0.05; ** p<0.01; *** p<0.001