Abstract
This paper focuses on examining the nonlinear impact of trade openness (TO) on economic growth (EG) in the Asean-6 countries (Indonesia, Malaysia, Thailand, Singapore, Philippines, and Vietnam). In order to achieve the set research objectives, the authors estimate the research model through the fixed-effect panel threshold approach. Unlike previous studies, this paper finds that there is a nonlinear impact of TO on EG, whereby TO has two threshold values. Specifically, before the first threshold value, TO plays an important role in boosting EG. However, this impact level decreases gradually when TO exceeds this threshold value. In particular, when exceeding the second threshold value, the impact of TO on EG is still positive but has a relatively low value. The research results show that if TO increases to a high level (beyond the threshold value) without combining with other complementary policies, this does not encourage high-efficiency EG. In addition, this study also shows that EG is positively affected by domestic investment and negatively affected by financial crisis. The findings in this paper are of great importance for the Asean-6 countries as well as researchers.
Highlights
trade openness (TO) has always been a concern for many countries, especially developing countries (Zahonogo 2016)
Zahonogo (2016) suggested that the impact of TO on economic growth (EG) was negative when TO exceeded the threshold value, whereas this study found a positive effect of TO on EG before and after the threshold values, but the level of this impact varies depending on the value of TO
This study identified the nonlinear impact of TO on EG in Asean-6 countries
Summary
TO has always been a concern for many countries, especially developing countries (Zahonogo 2016). This is because open economies often have faster growth rates than closed economies (Grossman and Helpman 1991a; Edwards 1993). When TO increases, production can be made more efficient and domestic technology is improved; productivity increases. TO can play an important role in stimulating. For this reason, in order to improve EG, TO is often a top priority for many countries. If TO is not accompanied by macroeconomic stability and a favorable investment environment, it is difficult to promote its role in stimulating EG (Newfarmer and Sztajerowska 2012)
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