The Impact of Economic Growth, Real Effective Exchange Rate, and Trade Openness on Trade Competitiveness in ASEAN-6

Yeap, Jass Jie Yu (2024) The Impact of Economic Growth, Real Effective Exchange Rate, and Trade Openness on Trade Competitiveness in ASEAN-6. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

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Abstract

This study aims to explore which tradable merchandise in ASEAN-6 countries demonstrates comparative advantage or disadvantage, and to evaluate how economic growth, real effective exchange rate, and trade openness influence trade competitiveness within the region. Previous research has demonstrated the utility of various trade indicators and panel regression analysis in assessing trade competitiveness across specific sectors and countries. However, these studies often focus on limited regions or industries, and their methodologies may not fully capture the complex interactions between macroeconomic factors and trade competitiveness, thus necessitating new research that broadens the scope to include multiple sectors and the effects of economic growth, real effective exchange rate, and trade openness across ASEAN-6 countries. This study employed disaggregated trade data categorized by the 2-digit HS commodity codes from UNCTAD, alongside economic variables (economic growth, real effective exchange rate, and trade openness) from The World Bank, using the panel Vector Autoregressive model to analyze trade competitiveness across the ASEAN-6 countries from 2003 to 2022. It is found that Malaysia, Indonesia, and the Philippines show trade strength in natural resource sectors, while Singapore and Thailand focus on industrial goods, and Vietnam excels in rubber, electrical machinery, and precious stones. Contrary to what has often been assumed, economic growth negatively impacts trade competitiveness in the short run, real effective exchange rate can be positively and negatively impact trade competitiveness, and trade openness negatively impacts trade competitiveness in the short-run.