Abstract
Trade liberalization has been mushrooming in the globalization era. The trade liberalization policy adoption by one country will be followed shortly by another. Although trade liberalization policy is strongly advocated by international organizations, a few prominent economists argue there is no ‘one fits for all’ policy. Thus, the policy effect altogether with other relevant aspects still needs to be explored in case by case basis, including ASEAN+6 regions. This paper is intended to analyze the relationship of trade liberalization and consumption on the real exchange rate in seven ASEAN+6 countries – the most dynamic region during period 2000 – 2011, a period covering subprime mortgage crisis. With data panel approach, the paper investigates the relationship of trade liberalization and consumption on real exchange rate while taking into account level of country’s income and crisis effect. The resulted model finds significant relationship in the overall and individual effect of tariff and terms of trade change as proxies of trade liberalization, consumption, level of country’s income, and subprime mortgage crisis on real exchange rate.
Highlights
In a globalized world nowadays, only countries with autarky system - if any – are not affected by the economic condition of other countries
In comparison with the theoritical reference, the result of my study resists the theory in the first mainstream (traditional policy literature and Tokarick (1995)). It supports the third mainstream theory proposed by Edwards (1987a; 1987b) which concluded the scepticism of a universal relationship of trade liberalization via tariff reduction on exchange rate and relied more in case by case basis
Trade liberalization policy is strongly advocated by international organizations, a few prominent economists argue there is no ‘one fits for all’ policy, including in this regard, trade liberalization
Summary
In a globalized world nowadays, only countries with autarky system - if any – are not affected by the economic condition of other countries. ASEAN countries and their trading partners as part of globalized world are no exception, they are affected by economic condition in other countries. Globalization opens restrictions for many aspects, including trade. Many industrialized countries supported by international institutions promoted trade liberalization policy as a policy recommendation for all countries, both developed and developing ones. Studies related with trade liberalization and its relevant aspects especially in cases including developing countries should be encouraged. With good and deep comprehension on trade liberalization policy adopted and its relevant aspects, every country - including developing countries - can manage its development goals to be more sustainable
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