Exploring the Trade and Economic Growth Nexus in ASEAN and SADC

Abstract

This dissertation consists of two chapters dedicated to the understanding of the effects of trade (import and export of goods and services) on economic growth. Chapter 2 seeks to understand the effects of trade on the economic growth of the 26 economies in the Association of South East Asian Nations (ASEAN) and the Southern African Development Community (SADC). The second part examines the relationship between economic growth and trade amid this set of high and low growth economies. The first part of Chapter 3, seeks out the enablers of trade in services in ASEAN and SADC and the second part, investigates the link between trade in services and economic growth in the same configuration. Chapter 2 is divided into two parts. The first part of the study builds on work by Robert M. Solow (1956) and Trevor Swan (1956), who developed an endogenous growth model independently of each other, which later came to be known as the Solow-Swan growth model. It identifies eight independent variables which could potentially affect economic growth in the 26 economies of ASEAN and SADC between 2000 and 2018. They are regressed using the following methods: Ordinary Least Squares (OLS), Random and Fixed Effects (under the Hausman Test). In the second part of this research, to enhance the understanding of the entire distribution, a quantile regression approach, which was first introduced by Koenker and Basset (1978), is employed. The five chosen quantiles are – 5th, 25th, 50th, 75th and 95th. The FE results for the import and export models, which were preferred under the Hausman Test, suggest a significant and positive correlation between imports and exports, capital goods accumulation and government effectiveness and economic growth. They also suggest a significant and negative correlation between natural resources rent, Foreign Direct Investment (FDI), Official Development Assistance (ODA) and internet (proxy for technological advancement) and economic growth for this set of economies. The quantile regression results suggest that effect of trade diminishes as the economies become wealthier. Chapter 3 considers the effects of nine independent variables on the import and export of trade in services, in ASEAN and SADC between 2000 and 2018. The OLS and FE and RE (under the Hausman Test) regression methods are employed. The results show that that the nine variables have an effect on the regions’ services’ imports and exports but not all of them are statistically significant. The second part of Chapter 3 also builds on the Solow-Swan growth model work, instrument variables are constructed, and the following regression methods are employed; OLS, FE, RE and 2-Stage Least Squares (2SLS) (fixed effect) to estimate the effects of trade in services on economic growth in both configurations over the period of 18 years (2000 to 2018). The results point to a positive link between trade in services and economic growth in ASEAN and SADC. Importantly, the results suggest that services imports have a greater impact on the economic growth of these 26 economies. This is counterintuitive according to economic theory, which has a negative view of imports. However, some empirical studies point to the beneficial effect of services imports, they find that services function as inputs to the production of other services and the goods production process.