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

Backgrounds in Economic Cooperation in ASEAN
Nowadays all countries all over the world seem to integrate together in order to facilitate their trade and improve their productivity or GDP. Recently there have been multiple free trade agreements and regional integration agreements. Additionally, word trade grew as fast as word output over the last two decades, thus deepening economic integration according to Celderon and Poggio. Likewise, in the senses of globalization process and structural adjustment, regional economic integration seems to play important role to push national economic development and to reform the national economic policy. Consequently, as I stated earlier, the movement towards regional economic integration, the world economy has decided to form the regional free trade agreements which intend to push the trade volume and to promote the economic growth.
According to the process of ASEAN, it was historically formed on 08 August 1967 in Bangkok, Thailand by the first five founding countries, namely Indonesia, Thailand, Singapore, Philippine and Malaysia. These five countries agreed upon to sign the declaration, so-called the ASEAN Declaration or the Bangkok Declaration. Subsequently, a new member, Brunei, joined in 1984. Then we saw a big surprise when Vietnam, a communist country, decided to transform its economy to a market economy and joined ASEAN in 1995. The remaining countries in Southeast Asia, namely, Cambodia, Laos, and Myanmar (CLM) decided to join in 1999 and 1997. Moreover, based on the Bangkok Declaration or ASEAN Declaration, the purposes in ASEAN’s formation are to strengthen the foundation and prosperous and peacefully community by facilitating economic growth, social progress and cultural development through the spirit of equality and partnership. Not only to promote the economic growth, but also to promote peace and social stability in the region in the sense of paying respect to the rule of law in the relationship among countries in the region as well as the United Nation Charter (UNC). In addition to these collaborations, another purpose is to help each other in the sense of research facilities and training in the fields of administration, education, profession as well as technology. Another one of its important purpose I interest the most in this paper is to expand their trade with the study of the problems of commodity trade, the improvement of the transportation and communication facility and the raising of the living standard of the peoples in the region.
Research Hypotheses
ASEAN as a whole has been trying to create its communities, for instance, the ASEAN Economic Community (AEC) as well as the ASEAN Free Trade Area (AFTA) in order to boost its foreign trade. The purpose to do so is to boost its sustainable economic development and enhance income distributions among members. So, this would leave out the hypothesis in this thesis that:
H1: “The foreign trade of the ASEAN members will have positive effect and suggest a strong positive correlation on the ASEAN members ’ economic growth and development.”
In terms of its AFTA and AEC as well as other sub-area agreements, ASEAN as a whole has been trying to develop structural factors or trade complementary such as financial development and institutional quality to enhance the economic development for the individual member as well as the region in order to enhance its economy. Therefore, this would lead to a hypothesis that:
H2: “There will be strong positive effects between the structural factors such as financial development and stock of institutions and economic development among ASEAN members.”
Relating to its history of economic overview and trend, the AFTA was actually launched in 1992, as I said in earlier, to boost foreign trade among its members. In term of this AFTA, a vast majority of trade barriers were eliminated and reduced and the economic environment has become better. That is the comparative advantage to attract more investment and enhance high productivity for local demand and foreign trade. They are doing so in the hope that the share of foreign trade could be enhanced larger and larger. In this context, a hypothesis would be leaved out, that is:
H3: “The foreign trade effect on economic growth among member countries would be different by time; increasing sharply especially after the time that AFTA was launched in 1992.”
The Structures of This Paper
This short empirical paper aims at showing the empirical investigation on the relationship of institutions and financial development and foreign trade in economic development of the ASEAN nations. In this paper, I consider the data from the Governance Indicators from the World Bank and some data of other variable from the Asian Development Bank (ADB). In order to find the results as well as the truth of such roles in economic development, some econometric methods and models are taken into account in analyzing the data. The context of political stability in doing business to enhance productivity growth, the ability of government to formulate and implement policies and regulations as well as some other variables related to good governance will be taken into account in this paper. This short paper is structured as follows: the first section of the paper reveals the issues and perspectives of the emerging of economic cooperation, and overview of the economic cooperation in ASEAN; its purposes and economic trend. Section 2 conveys the stylized facts about the roles of institutions as wells as the roles of financial development, and the relationship of foreign trade and economic development from the previous literature review. Section 3 defines the data used in this paper as well as the natures of variables adopted. Section 4 will define the econometric methods and the specific models used in analyzing the data in order to find the results. Section 5 shows the empirical results while the last section conveys the conclusion and implications in this paper.