THE EFFECT OF ECONOMIC LIBERALISATION ON ECONOMIC GROWTH : A CASE OF ASEAN-4 COUNTRIES

Abstract

The role of trade policy in economic development has always been of great interest to economists. With the current trend towards trade reform in developing countries and the recent developments in endogeneous growth theory that explain the dynamic effects of these reforms, there is a need to re-examine the liberalisation/growth relationship.

This shift in trade policy towards export orientation has also been occurring in ASEAN-4 countries in the past three decades. The future prospects and its effect on their growth has direct implications for Singapore. Hence, we will like to, base on past experiences, determine the validity of the export promotion hypothesis in these countries to see whether the this line of policy should be c Our analysis of the causality relationship will look at the relationship between exports and growth which will serve as a basis for any claims of a relationship between liberalisation and growth. The regression analysis will pursue the issue further by looking at what is the impact, if any, that liberalisation has on growth.

There have been numerous studies done on this subject with a range of conflicting results obtained. In terms of approach, our paper will be not much different from those studies. But our contribution to this debate will be the expansion of our growth model to include other relevant growth variables like proxies for human capital accumulation and government expenditure, in order to improve our analysis. We have also attempted to examine the different effects of individual, regional and global liberalisation. However, we have recognised the limitations of our model given the spectrum of factors that influence growth, especially with the fact that our data set coincided with the turbulent 70s and early 80s.

Our results showed little support for the liberalisation/ growth hypothesis in ASEAN-4. Similar results arc obtained for regional and global liberalisation as there is generally no positive impact on growth. An interesting point to note is that our analysis showed a possibility that liberalisation could have effect on growth through investments as seen from the Thailand case.

However, before we jumped to the conclusion that the export promotion strategy should be abandoned, we need to decide whether past data is a good basis for forecasting future trends. Given the distorting effects of external factors and the small data sets in ASEAN-4, this may not be the case. There is a possibility that the future growth prospects through liberalisation may be greater than our results suggest.