An Empirical Investigation of the “Internally Driven Growth” Hypothesis in ASEAN Countries

Abstract

This study examines the relationship between trade liberalization and economic growth in the Association of Southeast Asian Nations member countries by using time series data from 1971 to 2010. We extend the cross-country static panel analysis to a dynamic model to capture the persistent effect of trade liberalization for a longer period. The results of static and dynamic panel analyses are consistent in that trade liberalization, that is, exposure to exports and imports, is not a critical factor of economic growth and productivity improvement in ASEAN countries. In addition, we examine the causal relationship between exports, imports, and economic growth based on a Vector Error Correction model, Granger causality test, and Generalized Impulse Response Function(GIRF) analysis. The results show there is weak evidence in support of the export-led as well as import-led growth hypothesis?instead, a growth-led trade pattern is distinct in most ASEAN countries. In addition, GIRF analysis reinforces the internally driven growth hypothesis that economic growth in ASEAN countries is driven by internal factors rather than international trade.