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

UNIVERSITY OF ECONOMICS
HO CHI MINH CITY
VIETNAM

INSTITUTE OF SOCIAL STUDIES
THE HAGUE
THE NETHERLANDS

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 : Ha Manh Cuong
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.................................................................................................................... 3
1.1

PROBLEM STATEMENT..................................................................................... 3

1.2

RESEARCH OBJECTIVES .................................................................................. 5

1.3

RESEARCH QUESTIONS ................................................................................... 5

1.4

STRUCTURE OF RESEARCH ............................................................................ 6

CHAPTER 2.................................................................................................................... 7
2.1

INTRODUCTION ................................................................................................. 7

2.2

CONCEPTS AND DEFINITIONS ........................................................................ 7

2.3

THEORETICAL FRAMEWORK ......................................................................... 9

CHAPTER 3.................................................................................................................. 16
3.1

INTRODUCTION ............................................................................................... 16

3.2

EMPIRICAL MODEL ......................................................................................... 16

3.3

METHODOLOGY AND DATA COLLECTION ................................................ 17

3.4

DESCRIPTION OF VARIABLES ...................................................................... 18

3.5

SUMMARY OF THE STEPS USED IN THIS STUDY ..................................... 19

CHAPTER 4.................................................................................................................. 21
4.1

INTRODUCTION ............................................................................................... 21

4.2

SELECTION REASON OF FIVE ASIAN COUNTRIES .................................. 21

4.3 HIGHLIGHTS OF EXPORT ACTIVITIES AND SOURCES OF EXPORT GROWTH
OF ASEAN-5 OVER THE LAST DECADES ............................................................... 22
4.3.1

Economic growth of Vietnam over the studied period............................ 22

4.3.2

Export activity of Vietnam ...................................................................... 24

4.3.3 Comparison of correlation between Vietnam’s export growth and economic
growth ................................................................................................................. 25
4.3.4

Economic growth of Malaysia over the studied period: ......................... 26

4.3.5

Export activity of Malaysia ..................................................................... 28

4.3.6 Comparison of correlation between Malaysia’s export growth and economic
growth ................................................................................................................. 28
4.3.7

Economic growth of Thailand over the studied period ........................... 30

4.3.8

Export activity of Thailand ..................................................................... 33

4.3.9

Comparison of correlation between Thailand’s export growth and economic
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growth ................................................................................................................. 34
4.3.10 Economic growth of Indonesia over the studied period: ........................ 36
4.3.11 Export activity of Indonesia .................................................................... 39
4.3.12 Comparison of correlation between Indonesia’s export growth and economic
growth ................................................................................................................. 39
4.3.13 Economic growth of Singapore over the studied period ......................... 41
4.3.14 Export activity of Singapore ................................................................... 43
4.3.15 Comparison of correlation between Singapore’s export growth and economic
growth ................................................................................................................. 44
4.4

SUMMARY ......................................................................................................... 46

CHAPTER 5.................................................................................................................. 48
5.1

INTRODUCTION ............................................................................................... 48

5.2

DESCRIPTIVE ANALYSIS ................................................................................ 48

5.3

5.2.1

Correlation Coefficient Matrix................................................................ 48

5.2.2

Descriptive statistics result ..................................................................... 50

REGRESSION RESULTS AND ANALYSIS ..................................................... 53
5.3.1

Result analysis for Indonesia .................................................................. 55

5.3.2

Result analysis for Malaysia ................................................................... 56

5.3.3

Result analysis for Singapore .................................................................. 56

5.3.4

Result analysis for Thailand .................................................................... 57

5.3.5

Result analysis for Vietnam .................................................................... 57

CHAPTER 6.................................................................................................................. 59
6.1

CONCLUSION .................................................................................................... 59

6.2

POLICY RECOMMENDATIONS ...................................................................... 61

6.3

6.2.1

For The Selected Southeast Asia Countries ............................................ 61

6.2.2

For The Case of Vietnam ........................................................................ 62

LIMITATIONS OF THE THESIS ....................................................................... 64

APPENDIX A ................................................................................................................ 68
APPENDIX B ................................................................................................................ 69
APPENDIX C................................................................................................................ 70
APPENDIX D................................................................................................................ 72

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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

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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)....................................................................................................53

vii


The Impacts of Exports on
Economic Growth: The Case of
Selected Southeast Asia Countries

1


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%).

2


Chapter 1
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)

3


stressed the positive role of international trade as a strong motivation of economic growth, he
pointed out that the government should encourage exports and minimize imports. Keynes
(1936) considered effects of factors in aggregate demand on growth through multiplier.
Thirlwall (1979), post-Keynesian economist, considered demand, especially international
trade, as principal cause of accelerating or constraining growth. All their findings are
foundations for understanding and analysis of relationship between exports and economic
growth systematically and scientifically.
Based on these theoretical works, a series of researches have been conducted, using national,
regional and international data to clarify the above relationship. These researches tend to
confirm that exports have a positive relationship with economic growth (Sprout, 1993, Van
den Berg, 1994). Successful models of outward-oriented development of East Asian Countries
during the last decades are the persuasive evidences for the role of exports as a driving force
of economic growth in this region (Frankel, 1996).
Nevertheless, the above positive relationship is not always right in the case of all countries,
regions. In the other word, speeding up exports does not always bring in higher growth rate
for the economy, if other conditions remain unchanged and/or other prior conditions are not
satisfied. There were not less studies that showed the weak role of exports to GDP growth in
some countries and group of countries (Dodaro, 1993, Jung, 1985, Salvatore, 1991). Along
with prudence in consideration of the relationship among exports and economic growth,
policy-makers of each country therefore would have to find a way to measure these

relationships in their own country, before making development strategies such as speeding-up
of exports as a driven engine for economic growth.
Many theoretical and empirical evidences have proven that economies nowadays tend to have
a faster growth than 50 years ago thanks to free trade, especially developing countries and
emerging economies in Southeast Asia. However, the fact shows that economic growth of the
five Southeast Asia countries from the support of exports is still not sustainable and contains
costs and risks by the instability of outside impacts such as the Asian financial crisis in 1997 –
1998 and the global economic crisis in 2008, these impacts may hamper the economic growth.
Furthermore, the five Southeast Asia countries’ economies are very different and not equally
developed. Therefore, examining the difference in the impact of exports on economic growth
among the five Southeast Asia countries’ economies is a necessary task to have proper policy
4


implications. Therefore, an important policy implication is that the five Southeast Asia
countries should restructure the composition of exports to focus on goods with high
value-added and stable demand in the long term. Besides, the five Southeast Asia countries
should encourage and have preferential policies to export sectors. More importantly, reform
of export sectors with highly comparative advantage should be encouraged to aim at
strengthening export competition capacity of the economies of these countries. Vietnam, one
of Southeast Asia country, is a developing country and not an exception. Vietnam
Government therefore has been trying to speed up its economy following the exports-led
growth direction. But unfortunately global financial crisis in 2008 happened and has been
spreading worldwide, it seriously affected to almost economies on the world, including
Vietnam because of its high openness of the economy. As a result, the global economic crisis
and its price fluctuation may make the world’s demand on Vietnamese products to decline,
and cause negative effect Vietnam export with its important role will cause negative impacts
on the economy because Vietnam economy is heavily relied on exports. For this reason, this
study aims to assess the role and the impacts of exports on the economic growth of Vietnam.

1.2

RESEARCH 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 on economic growth cross the
selected Southeast Asia countries. And,
(3) To propose appropriate policies for fostering the economic growth and
development of Vietnam.

1.3

RESEARCH QUESTIONS

To reach the above objectives the paper has to answer the following questions raised from
the above objectives:
(1) Do exports impact economic growths of the selected Southeast Asia countries?
(2) How different do exports impact on growth across the selected countries?
(3) What are the policy implications for policy-makers?
5


1.4

STRUCTURE OF RESEARCH

The remainder of this paper contains five parts:
The first part includes Chapter 2, which is a literature review in relation to exports and

growth. Also, this chapter includes definitions and a summary of research results of
previous studies.
The second part consists of Chapter 3, which outlines the thesis design and procedures.
The chapter also contains a summary of data collection as well as analysis methods
used.
The third part contains Chapters 4, which is an overview and a highlight of economic
growth and exports of the five selected Southeast Asia countries over the period of
1991 - 2010. Economic and export achievements of countries are also illustrated
through figures and data collected from various reliable sources.
The fourth part is Chapters 5 presenting, discussing the empirical results and giving
conclusions. Both descriptive statistic and regression results are shown and discussed
to determine the relationship between exports and growth of the selected countries.
Summary and analysis of specific result for each country are also made to have a
comparison and recommendation.
The fifth part is the last chapter: Chapter 6, which gathers results and analyses from the
previous chapters to give recommendations and policy proposals. Inclusively, in this
chapter limitations and further studies are also mentioned.
This paper also has four appendices:
Appendix A records the regression result from using the fixed effects approach.
Appendix B lists the results of testing Heteroscedastiscity via White-test approach for each
country.
Appendix C consists of the scatter diagrams of two variables: Exports and Growth for each
country.
Appendix D is the collection of the scatter diagrams showing the correlation of the
variables in the model for each country.

6


Chapter 2

BACKGROUND
2.1

INTRODUCTION

This chapter aims to review theoretical literatures on the impacts of exports on economic
growth from classical and modern economic schools of thought in the world. This chapter also
mentions concepts and definitions on exports and economic growth as well as summarizes
study results of economic journals, papers, researches concerning to exports and economic
growth from many authors all over the world. At the end of this chapter, a summary of empirical
studies on the relationship of exports and economic growth is provided to support research
objectives of this paper.

2.2

CONCEPTS AND DEFINITIONS

Exports
According to Blanchard (1997), exports are the purchases of domestic goods and services by
foreigners. The exports of one country are, by definition, the imports of another.
Net export: is the whole value of total exports in a country excluding the total imports value.
Net export is a factor to calculate a country’s GDP with its open economy. Besides, there is a
concept of net exports that may imply more clearly that that net export is calculated by export
value of goods and services generated in a country subtract import value of goods and
services of the country produced in other countries. It is known as a trade surplus when export
value is greater than import value or net exports are a plus; in contrast a trade deficit will be
resulted from export value smaller than import value or net exports are smaller than zero.

7

Export growth
Following Krueger (2000), “Export growth is defined as the long term trend in a country’s
foreign exchange earnings from goods and non-factor services”.
Moreover, exports interacts economic growth by two primary methods: Exports can produce
profit and at the same time support to balance finances of a country, additionally help the
country improve its debt balance. The second one is that export growth may bring to a
country’s greater productivity. The formula to compute net exports is that: Net Exports =
Exports – Imports.

Economic growth
The financial term “Economic growth” is defined as the growth of an economy. This term
refers to an increase in production of goods and services in a country (Gillis, 1996). Given
this proposition, the best way to measure this “increase in production of goods and services in
a country” is the annual percentage growth rate of GDP.
More clearly, according to Graeme (2006), economic growth is the term that shows how
much the economy’s domestically produced product within a year grows, in comparison with
that of previous year or the base year. Economic growth is defined as the change in GDP
regardless of how GDP is distributed among people. Inclusion, economic growth is referred to
annual change in GDP and its completely difference from the term “economic development”
which is much more popular than economic growth.
In another approach, growth can be defined as the change in total real output or per capita real
output over time. For instance, measure of growth is defined as g = (Yt – Yt-1)/Yt-1, in which
Yt and Yt-1 are the total real output or per capita real output in periods t and t - 1, respectively.
Economic growth rate can be distinguished between actual and natural growth rates. Actual
rate of growth is measured as relative or percentage change of output in a period of time. The
natural rate of growth, firstly introduced by Harrod (1939), refers to the rate of growth of
productive potential of an economy, or 'social optimum' rate of growth. Sachs (1993) defined
potential output is the output level at the natural level of unemployment.
8

2.3

THEORETICAL FRAMEWORK

Back to very earlier time, trade and its development were always proved to be very closely
related to economic growth. This relationship was mentioned and clarified by many classical
economists upon their studies on the role of international trade. So far, there are many
researches focusing on proving and determining the positive contribution of exports as one of
determinants of economic growth. Far ago, the relationship between exports and economic
growth was a special interest in classical schools of thought of which typical representatives
are the thought schools of Adam Smith (1776) and David Ricardo (1817). According to Adam
Smith (1776), his theory showed a strong link of international trade and productivity
improvements by a size expansion of markets so enabling the realization of economies of
scale. Afterward, David Ricardo (1817) evidenced that trade among two countries which
specialize according to their comparative advantages, and then both of them get benefits from
trade. Other economists logically found out more that domestic firms gain and are accessible
to a wide range of foreign inputs at a cheaper cost thanks to free trade. In addition, to go
further and persuasively that exports expansion could have good effects on economic growth
and faster development of economic.
Classical economic schools of thought also consists of Mathus (1798), Ramsey (1928), Young
(1928), Knight (1944), and Schumpeter (1934) considering the accumulation of physical and
human capital, technological progress, and competitive environment as causes of growth.
Many ideas of classical economists transmit to neoclassical growth theory. Neoclassical
economists such as Cass (1965), Koopmans (1965), Solow

(1956), Swan

(1956), Romer

(1990), Grossman and Helpman (1991), and Aghion and Howitt (1992) built their models
including four variables: labor, capital, technology, and output. Sources of growth originate
from these factors although there are opposite opinion amongst them about the magnitude of
each factor contributing to growth. The neoclassical growth model is based on three main
assumptions. Firstly, the labor force and labor-saving technical progress grow at a constant
exogenous rate. Secondly, all saving is invested. Thirdly, output is a function of the three
variables, including labor, capital, and technology as above mentioned. And the production
function exhibits constant returns to scale or diminishing returns. Their conclusions are the
convergence of per capita income across the world.

9


New growth theorists or endogenous growth theorists as Romer (1986), Lucas (1988), Rebelo
(1991), and Barro (1991) emphasized on R & D, spillovers of knowledge and external
benefits from human capital, and they overcome shortcomings of neo-classical economists by
considering phenomenon under assumption of imperfect competition. These factors could
prevent from diminishing returns to the accumulation of capital. Moreover, they consider
long-run growth rate determined within the model, so it is called endogenous growth models.
Secondly, some activities are subject to increasing returns and others are subject to
diminishing returns. Developing countries, if basing on comparative advantage theory, will
specialize in producing labor-intensive goods that are considered as having diminishing
returns because developing countries are labor-abundant. Developed countries otherwise
specialize in producing and export manufactured goods that used capital-intensive
technologies and have increasing returns because developed countries are capital-abundant. If
this is so, developing countries will face the Engel's law and developed countries have
economies of scale, then deterioration of terms of trade may destroy the balance of payments
of developing countries that will in turn constrain economic growth in less developed
countries. Thirdly, the comparative advantage theory appeals to countries for specialization

could lead to narrow excessively range of products and put economy into severe
balance-of-payments instability that can demolish development. Fourthly, comparative
advantage may vary over time by government policies and intra-industrial trade still takes
place due to differences in consumer's tastes, technologies. Furthermore, comparative
advantage theory bases on private cost, what happens if social costs exceed private costs
because of externalities of industrial projects that usually occur in developing countries. This
is argument for protecting industry other than free trade. Last but not least, export growth of
primary commodities has little secondary impact on other activities. Conversely, expansion of
manufactured goods strongly affects other activities through backward or forward linkages.
Comparative advantage is the keystone for free trade supporters. Although disadvantages of
free trade for development can appear, it is hard to say that trade liberalization should be
stopped despite any arguments, trade liberalization is necessary for economic growth but the
questions now are that when free trade should start and how trade liberalization should be.
Classical, neoclassical, and new endogenous growth economists focus on trade and growth
through supply side, post-Keynesian economists otherwise emphasize demand side of
10


economic growth. Keynes (1936) criticized classical economists, especially Say's law, by
believing that supply creates demand. Keynes (1936) considered economic growth is caused
by aggregate demand including consumption, investment, government expenditure, and net
export. Change of one of these elements will bring about variation of economic growth
through multiplier such as government-purchases multiplier, investment multiplier. In
Keynes's point of view, components of aggregate demand play equal roles in affecting
economic growth. Other economists consider different importance of each component in
contributing to economic growth. Thirlwall (2002) stressed on exports in aggregate demand
by three important respects that export can promote other components of aggregate demand
and economic growth. Firstly, exports are only true component emanating from outside the
economic system meanwhile others depend on the growth of income. Secondly, exports
impact not only directly on demand but also indirectly through its influence on other

components in aggregate demand. Imports can be financed by exports and consumption,
investment also are partly funded by exports. Thirdly, certain intermediary goods that are
indispensable for development but expensive to produce domestically can be permitted by
exports. This argument lies in the supply-side.
Recent time, several seminal theoretical works such as Grossman (1991) has given out a
framework to understand and analyze more deeply the effects of exports on economic growth.
It is obvious that total factor productivity can be grown thanks to exports expansion through
their positive effect on size economies and externalities including better management skills,
diffusion of technology, higher trained labor, and capacity utilization (Bald, 1996 ).
Almost empirical studies admitted that free trade is the determinant of economic development.
A series of cross-country studies demonstrated a tight and positive relationship between trade
orientation and economic growth. Analyses of country experiences in major projects over few
decades in the past proved that by integration in free international trade, developing countries
could make their welfare and growth better significantly. Economic performance in East Asia
over several decades now has showed persuasive evidences that exports are a key of growth in
this region (Balassa, 1978, Blomqvist, 1997, Chow, 1987, Garnaut, 1996). However, it is
important to notice that in the literature regarding the effect of openness in economic growth
some reservations is still existing, in addition to the causality relationship of exports and
economic growth. For instance, Clarke (1992) estimated the effect in reform of trade policy
11


on economic performance by pooled data of 80 developing countries in the period of
1981-1988, he found out that benefits from trade reform strategies to economic performance
were not clear. More specifically, Rodriguez (1999) indicated a number of weaknesses in
recent practical studies that focus on trade liberalization.
Besides, there are still some proofs that show threshold effects between exports and economic
growth. Michaely (1977) employs data from 41 under-developed countries for the period
1950-1973 and showed that though the correlation between exports and economic growth is
proved to be positive and statistically significant, the effects of export performance to growth

only if countries have some minimum achievement of development. In a research from 53
non-oil under-developed countries, Sheehey (1992) stressed that the growth of exports share
has significant impact for the industrialized countries.
There are also some matters in export composition. It has been pointed out that exports from
primary commodities are much more cyclically sensitive than manufactured products
exported. Countries with exports of the manufactured products incur less from cycle recession
or recovery, to the extent that in global markets for manufactures their share is still
inconsiderable (Harrison, 1996). There are a number of empirical studies supporting this view,
Greenaway (1994) inclusively, which collected a panel data from 69 countries and concluded
that those under-developed countries that focus on manufactured products were more likely to
get benefit from export-led growth than those that concentrated in food as well as other
primaries.
Besides, in the literature of the relationship between exports and economic growth, most
recently there is a comprehensive research for this literature conducted by Giles (1996) who
collected and classified over one hundred and fifty papers regarding exports and growth
published during the period of 1963 – 1999. These papers are divided into three groups. The
first one is based on papers using cross-country coefficients of rank correlation. The next one
employs analysis of cross-sectional regression. And the last one applies techniques of
time-series on country by country basis. Two thirds of the studies are from the third group and
above fifty percent applies Granger causality concept.
In the causality direction among exports and economic growth, as exports is a major part of
GDP, causality may move from exports to growth and vice versa. Large practical works, that
12


research numerous groups of under-developed countries as well as individual countries, for
example: Paraguay, Malaysia and NICs in Asia (Hong Kong, Singapore, Korea and Taiwan),
have discovered no persuasive evidence to conclude the causality among exports and growth
in these number of countries and groups of countries (Begum, 1998, Richards, 2001). Yet, in
the situation where exists a positive impact of exports increase on production expansion, such

a positive impact could be limited as well as offset by the increasing imports of manufacturing
making domestic production go down. This has been proved, for example, by Ruiz-Napole
(2001) through the Mexican case in the time: 1978 to 1994.
Lastly, the papers of Romer (1986) and Lucas (1988) were a commencement for a new wave
of research on economic growth with either neoclassical models of growth or endogenous
growth theory. The theory recommended a various number of channels that thanks to an
economy could reach endogenously steady-state growth. The theory mentioned that an
improvement of productivity would help a developed country get growth.
Table 2-1 is a summary of empirical studies on the impact of exports on economic growth
from many other authors and datasets over countries all over the world.
Table 2-1: Summary of researches studying on impact of exports on growth.
Study

Sample

Variables

Findings

Sheehey
(1990)

Cross-sectional
GDP growth, Export,
data of 36
Investment and Labor
developing
growth
countries, 1960-70

Exports have statistical
insignificant effects on
growth.

Sun and
Parikh

Panel data of 29
provinces in
China 1985-1995

Real GDP growth, Real
Export, Ratio of Domestic
Investment over GEP &
Labor growth

Provincial GDP
growth is largely due
to export expansion.

Jung and
Marshall
(1985)

Cross-sectional
data of 37
countries

GDP growth, Export,
Investment and Labor

growth

Exports do not have
effects on

Ram (1987)

88 countries 1960
- 1982

GDP growth, Export,
Investment and Labor
growth

GREX has statistical
significance in 38
countries of

Growth.

88.
13


Study

Sample

Variables

Donaro
(1993)

87 countries 1967
- 1986

GDP growth, Export, Fixed
Capital and Labor growth

Export growth does
not lead to Growth.

Salvatore and

26 countries
(1963-1985)

GDP growth, Export,
Domestic Investment, and
Labor growth

GREX is not
statistically significant.

Lloyd,
Annual log of data Exports, Government
Morrissey and of Gana 1970-97
consumption, foreign aid,
Osei 2001
private investment

Exports have positive
effect on GDP growth.

Al-Yousif
(1999)

Malaysian annual
data set 1955-96

Real GDP growth, Real
Export, Gross Fixed Capital
and Labor growth

Exports have
significant short-run
casual effect of real
output.

Van den Berg
(1994)

17 countries
1960-1987

Real GDP growth, Real
Export

GREX is significant

Hatcher
(1991)

Findings

Below is the form of the linear econometric model that many economists have employed to
test the impact of exports on economic growth:

GGDP = 0 + 1GCAP + 2GLAB + 3TRADE

(1)

in which, GGDP denotes the real GDP; GCAP is the variable of real capital stock, GLAB
indicates the growth rate of labor force, and TRADE is the international trade. This model is
related to a hypothesis that higher marginal productivities in export production because of the
scale impacts as well as externalities combined with export production. With the force of
labor and capital stock, expanding the export sector will increase growth of GDP.
According to a neoclassical model, Model (1) could be re-assembled to become the equation
of “Source of Growth” as follows:

GY = GTFP + GK + (1-)GL

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(2)


where GY denotes the growth rate of total input; GK indicates the growth rate of capital; GL
is the growth rate of labor; and GTFP represents growth rate of total factor productivity. The
assumptions for this equation is that constant return economy to scale and labor is

homogeneous.
However, in reality GK is widely substituted by the investment-to-output ratio, I/Y. Trade is
replaced by a proxy: growth of real exports. The equation (1) then is re-arranged into the
following form:

GGDP = 0 + 1(I/Y) + 2GLAB + 3GEX

(3)

where, GGDP stands for GDP growth, GEX denotes Growth of real exports, I/Y represents
the ratio of gross domestic investment to the GDP and GLAB is Labor growth.

15


Chapter 3
METHODOLOGY
3.1

INTRODUCTION

This is a summary of the chapter content. In this chapter, there are five main sections:
The first one is choosing empirical model, the paper will describe the consideration way to
choose out an empirical model that most appropriate for running regression. Between
Equations (1), (2) an (3), the paper approaches to choose Equation (3) because it is unbiased
and available of data of variables.
The next is methodology and data collection. It will be an introduction of the methodology of
the paper and the ways to collect data, sources and limitations in collecting data.
Besides, description of variables and estimate of expected signs of independent variables are
the third section that is also made and formed in tables.

Finally, the last section also specifies all steps used in regression and data estimate to prepare
for the next chapter.

3.2

EMPIRICAL MODEL

The outcomes of researches based on the Feder (1982) and Balassa (1978) approaches are still
biased in determining a built-in correlation among exports and GDP. Sheehey (1990) clearly
16


points out that exports as well as all main production categories have a direct correlation with
GDP growth. With above-mentioned limitations of Feder (1982) and Balassa (1978)
approaches, Sheehey (1990) approach (Equation 3 in Chapter 2) is adapted for this study.
Based on the Equation (3) mentioned in the literature review, the Equation (3) is re-written as
follows:
GYit = 1i + 2i(I/Y)it + 3iGRLit + 4iGEXit

3.3

(4)

METHODOLOGY AND DATA COLLECTION

Data in quantitative analysis is very important in estimating exactly regression coefficients
and in analyzing reality. Although collecting data to complete the thesis is difficult, it is still
completed from efforts in collecting data from official sources. The data used for estimating
the model mainly comes from the World Bank website. Data used in this study are annual data
and covers the period: 1991 – 2010, that consist of observations for real GDP, real exports,

gross capital formation and labor force data of Vietnam, Thailand, Malaysia, Indonesia and
Singapore collected from the World Bank website and extracted from other numerous official
sources including UNDP, ADB websites.
It is reasonable to choose the five Southeast Asia countries including Indonesia, Malaysia,
Singapore, Thailand and Vietnam in the paper because they are located in the same region and
presented for the five different economies of Southeast Asia which relatively fully reflect the
nature of the region with developing economies of Vietnam, Indonesia, a transitive economy
of Thailand and developed economies of Malaysia and Singapore. These countries have been
also doing strong reforms in export policies and economic policies with the same purpose of
pursuing export-oriented economy policy and becoming a developed country. Although the
sample of the survey does not represent for the whole Southeast Asia, it represents enough for
exports and development of the Southeast Asia.
The thesis will employ both descriptive statistics and regression methods for data analysis to
find out the impact of export growth on economic growth of economies in ASEAN-5.

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For descriptive statistics, the paper will observe comparative charts between export growth
and economic growth over time as well as export composition tables of each selected country
to compare relatively the relationship between exports and growth of each country based on
data of these countries’ exports and GDP growth over time. Next, the paper will examine
descriptive statistics of the variables in the model such as Mean, Median, Maximum,
Minimum, Standard Deviation, Skewness and analyze correlation among the variables
included in the model. Results of descriptive statistics and correlation matrix estimate will be
summarized under tables form and analyzed as well as explained to have an overall
assessment about the relationship between all variables including GDP growth, export growth,
capital growth and labor growth.
For quantitative econometrics, to examine deeply the impact of exports on economic growth
the paper will estimate a regression model using a panel data set, with fixed effects and with

SUR (Seemingly Unrelated Regression) method. The fixed effects method will allow to have
specific regression results for each country. Based on that, the paper will analyze and evaluate
the impact of exports and economic growth of each country. Finally, the paper will make
conclusion and propose policy implications. At the same time, the paper will also test HET for
data of each country to make sure estimate results are not biased

3.4

DESCRIPTION OF VARIABLES

Based on the equation (4), below is a description table of dependent and independent
variables in the model. In addition, the table also shows expected signs of independent
variables in the model.
Table 3-1: Summary of variables in the model
No.

Variables

Description

Expected sign

Annual GDP growth rate (annual %)
1

GY

Dependent variable
This is the dependent variable

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