Abstract
This paper examines the relationship between manufacturing exports and imports of capital goods in Thailand using monthly data from January 2000 to July 2011. The results from bounds testing for cointegration show that there exists long-run equilibrium relationship between exports and imports of capital goods in manufacturing sector. In addition, the positive relationship between the growth rate of imports of capital goods and the growth rate of manufacturing exports is observed. The results support the notion that foreign capital is essential in the process of industrialization, and thus economic growth. A decline in imports of capital goods will reduce manufacturing exports and impedes economic growth in the future. It is also likely that exports of manufactured products are the main source of foreign exchanges to finance imports of capital goods which cannot be produced in the country due to comparative disadvantage.
Highlights
The long-run effect of capital accumulation on economic growth has been widely recognized in the economic development literature
The autoregressive distributed lag (ARDL)-error correction mechanism (ECM) model, known as “bounds testing for cointegration”, proposed by [14] is used to analyze the level relationship among manufacturing exports, imports of capital goods and real effective exchange rate
The ARDL bounds testing for cointegration is suitable to use, and the procedure consists of three steps: 1) Estimating ordinary least square (OLS) regression with the first difference of the variables in Equations (5)-(8); 2) adding lagged-level variables and conducting the variable addition test specified in Equations (9)-(12), and 3) obtaining the computed F-statistics from step 2, and compare them with the bound critical values that have two asymptotic critical values
Summary
The long-run effect of capital accumulation on economic growth has been widely recognized in the economic development literature. The ARDL-ECM model, known as “bounds testing for cointegration”, proposed by [14] is used to analyze the level relationship among manufacturing exports, imports of capital goods and real effective exchange rate.. The ARDL-ECM model, known as “bounds testing for cointegration”, proposed by [14] is used to analyze the level relationship among manufacturing exports, imports of capital goods and real effective exchange rate.2 The advantage of this procedure is that it does not require that all variables be integrated of order. The results show that there is a long-run relationship between manufacturing imports, imports of capital goods, and real effective exchange rate.
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