CAPITAL INTENSITY, OPENNESS, AND THE ECONOMIC GROWTH OF THE ASEAN 5

https://doi.org/10.22146/jieb.23268

Ni Putu Wiwin Setyari(1*), Surya Dewi Rustariyuni(2), Luh Putu Aswitari(3)

(1) Faculty of Economics and Business, Universitas Udayana, Indonesia
(2) Faculty of Economics and Business, Universitas Udayana, Indonesia
(3) Faculty of Economics and Business, Universitas Udayana, Indonesia
(*) Corresponding Author

Abstract


One of the core elements of the neoclassical growth theory is that poor countries have low capital-labor ratios but have higher marginal products of capital than the rich countries. This means the low-income countries experience faster growth rates and become a reason for allowing capital, goods, and technology can move across countries. Assuming that the labor intensive countries have higher returns on capital, then investment will flows into those countries and encourage higher economic growth. However, in fact capital flows seems to go in the opposite direction. A country with abundant capital can expand its capital-intensive sectors and export their goods along with trade liberalization. Consequently, the returns to capital in its capital-intensive sectors rise and a greater demand for investment induces higher capital inflows from abroad. Those predictions push developing countries to change their labor intensive industrial structures and become more capital intensive, to encourage their economic growth. This paper examines how capital intensity and openness affect economic growth using data from the ASEAN 5 countries data. The issue of endogeneity and unobserved heterogeneity, as major problems in a data panel, are addressed by the fixed effect method and the Feasible General Least Square (FGLS). Capital flows appears to be the most important source of economic growth, whilst trade is found to have a limited role. The interaction between capital intensity and the openness indicator do not indicate significant effects. Generally, there is no evidence that the more outward-oriented countries with high levels of capital intensity experiences higher economic growth.


Keywords


foreign direct investment, economic growth of open economies, capital intensity of industrial structure, and impact of globalization

Full Text:

PDF


References

Acemoglu, D., & Guerrieri. (2008). Capital Deepepening and Nonbalance Economic Growth. Journal of Political Economy, Vo. 116, No. 3 , 467-498.

Ashraf, Q. H., Lester, A., & Weil, D. N. (2008). When Does Improving Health Raise GDP? NBER Working Paper No. 14449.

Bailliu, J. N. (2000). Private Capital Flows, Financial Development,and Economic Growth in Developing Countries. Bank of Canada.

Baldwin, R., & Seghezza, E. (1996). Testing for Trade-Induced Investment-Led Growth. NBER Working Paper 5416.

Baltagi, B. H. (2005). Econometric Analysis of Panel Data. West Sussex: John Wiley & Sons Ltd.

Barro, F., & Sala-i-Martin, X. (2004). Economic Growth. Cambridge: MIT Press.

Barro, R. (1991). Economic Growth in a Cross Section of Countries. The Quarterly Journal of Economics, Vol. 106, No. 2 , 407-443.

Berlemann, M., & Wesselhöft, J.-E. (2012). Estimating Aggregate Capital Stocks Using the Perpetual Inventory Method – New Empirical Evidence for 103 Countries –. Hamburg: Department of Economics Helmut Schmidt University.

Blomström, M., & Kokko, A. (1998). Multinational Corporations and Spillovers. Journal of Economic Surveys, Vol. 12, No. 3, 247-277.

Braun, M., & Raddatz, C. (2007). Trade liberalization, Capital Account Liberali-zation and the Real Effects of Financial Development. UC Santa Cruz conference.

Capolupo, R., & Celi, G. (2008). Openness and Economic Growth: A Comparative Study of Alternatif Trading Regimes . Economie Internationale, No. 116 , 5-35.

Caporale, G. M., & Girardi, A. (2012). Business Cycles, International Trade and Capital Flows Evidence from Latin America. Berlin: Deutsches Institut für Wirtschaftsforschung.

Cipollina, M., Giovannetti, G., Pietrovito, F., & Pozzolo, A. F. (2011). FDI and Growth: What Cross-Country Industry Data Say. Economics & Statistics Discussion Paper No. 060/11, Università degli Studi del Molise.

Daumal, M., & Özyurt, Ö. (2011). The Impact of International Trade Flows on Economic Growth in Brazilian States. Review of Economics and Institutions, Vol. 2, No.1 .

Edwards, S. (March 1997). Openness, Productivity and Growth: What We Really Know? NBER Working Paper No.5978 .

Edwards, S. (1993). Trade Policy, Exchange Rates, and Growth. NBER Working Paper No. 4511 .

Farkas, B. (2012). Absorptive Capacities and the Impact of FDI on Economic Growth. Deutsches Institut für Wirtschaftsforschung Discussion Paper No. 1202 .

Gujarati, D. N., & Porter, D. C. (2009). Basic Econometrics. New York: McGraw-Hill/Irwin.

Gundlach, E. (1997). Openness and Economic Growth in Developing Countries. Weltwirtschaftliches Archiv Vol. 133, Iss. 3 , 479-496.

H., L., & P., B. (1973). Localized Technical Progress and Transfer of Technology and Economic Development. Journal of Econo¬mic Theory, Vol. 6 , 585-595.

Hall, R. E., & Jones, C. I. (1999). Why Do Some Countries Produce So Much More Output Per Worker Than Others? The Quarterly Journal of Economics, Vol. 114, No. 1 , 83-116.

Harris, R. (1995). Using Cointegration Analysis in Econometric Modelling. Prentice Hall.

Hausmann, R., Hwang, J., & Rodrik, D. (2007). What You Export Matters. J Econ Growth, Vol. 12 , 1-25.

Henry, P. B. (2003). Capital Account Libera-lization, The Cost of Capital, and Economic Growth. NBER Working Paper No. 9488 .

Inklaar, R., & Timmer, M. P. (2013). Capital, Labor and TFP in PWT 8.0. Groningen Growth and Development Centre, Univer-sity of Groningen.

Insukindro, & Sahadewo, G. A. (2010). Inflation Dynamics in Indonesia: Equilibrium Correction and Forward-Looking Phillips Curve Approaches. Gadjah Mada Inter¬national Journal of Business, Vol. 12, No. 1 , 117-133.

Jin, K. (2012). Industrial Structure and Capital Flows. The American Economic Review, No. 102(5) , 2111-2146.

Kawai, M., & Wignaraja, G. (2014). Trade Policy and Growth in Asia. Tokyo: Asian Development Bank Institute.

Kokko, A. (1994). Technology, Market Characteristics, and Spillovers. Journal of Development Economics, Vol. 43 , 279- 293.

Kokko, A., & Thang, T. T. (2014). Foreign Direct Investment and the Survival of Domestic Private Firms in Viet Nam. Asian Development Review, vol. 31, no. 1 , 53–91.

Lawrence, R. Z., & Weinstein, D. E. (1999). Trade and Growth: Import - Led or Export - Led? Evidence from Japan and Korea. Cambridge: NBER Working Paper 7264.

Lee, M., & Tcha, M. (2004). The Color of Money: The Effects of Foreign Direct Investment on Economic Growth in Transition Economies . Review of World Economies, Vol. 140, No. 2 , 211-229.

Levine, R., & Renelt, D. (1992). A Sensitive Analysis of Cross-Country Growth Regressions. American Economic Review, No. 82 , 942-963.

Lim, E. (2001). Determinants of, and the Relation Between, Foreign Direct Invest-ment and Growth: A Summary of the Recent Literature. International Monetary Fund Working Paper.

Lim, G., & McNelis, P. D. (2014). Income Inequality, Trade and Financial Openness. RES-SPR Conference on “Macroeconomic Challenges Facing. Washington: Interna¬tional Monetary Fund.

Lin, J. Y. (2003). Development Strategy. Viability, and Economic Convergence. Economic Development and Cultural Change, Vol. 51, No. 2 , 277-308.

Lin, J. Y., & Zhang, P. (2009). Industrial Structure, Appropriate Technology and Economic Growth in Less Developed Countries. Policy Research Working Paper No. 4905, The World Bank .

Makki, S. S., & Somwaru, A. (2004). Impact of Foreign Direct Investment and Trade on Economic Growth: Evidence from Developing Countries. American Journal of Agricultural Economics, vol. 86, issue 3 , 795-801.

Medvedev, D. (2006). The Impact of Preferen¬tial Trade Agreements on Foreign Direct Investment Inflows. World Bank Policy Research Working Paper No. 4065.

Mencinger, J. (2003). Does Foreign Direct Investment Always Enhance Economic Growth? Kilkos, Vol. 56, No. 4 , 491-508.

Mincer, J. (1981). Human Capital and Economic Growth . Cambridge: NBER Working Paper No. 803.

Nelson, R. R., & Pack, H. (1999). The Asian Miracle and Modern Growth Theory. The Economic Journal, Vol. 109, No. 457 , 416-436.

Nowak, F. L. (2000). Trade Policy and Its Impact on Economic Growth: Can Openness Speed Up Output Growth? IAI.

Pagan, A. R., & Wickens, M. (1989). A Survey of Some Recent Econometric Methods. The Economic Journal,Vol. 99, No. 398 , 962-1025.

Park, D., Park, I., & Estrada, G. E. (2008). Prospects of an ASEAN-People's Republic of China Free Trade Area: A Qualitative and Quantitative Analysis. ADB Working Paper Series, No. 130 .

Pesaran, M. H., & Shin, Y. (1999). An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis. In S. S, Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium (p. Ch. 11). Cambridge: Cambridge University Press.

Pesaran, M. H., Shin, Y., & Smith, R. P. (2001). Bounds Testing Approaches to the Analysis of Level Relationship. Journal of Applied Econometrics, Vol. 16 , 289-326.

Pesaran, M. H., Shin, Y., & Smith, R. P. (1998). Pooled Mean Group Estimation of Long Run Relationships in Dynamic Hetero¬genous Panel.

Prasad, E. S. (n.d.). Foreign Capital and Econo¬mic Growth. National Bureau of Economic Research .

Rodriguez, F. (2006). Openness and Growth: What Have We Learned? United Nations.

Rodriguez, F., & Rodrik, D. (2001). Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence. In B. S. Rogoff, NBER Macroeconomics Annual 2000, Volume 15 (pp. 261 - 338). MIT PRess.

Rodrik, D. (1999). The New Global Economy and Developing Countries: Making Openness Work. Washington: Policy Essay 24, Overseas Development Council.

Rodrik, D., Subramanian, A., & Trebbi, F. (2004). Institutions Rule: The Primacy Over Geography and Interaction in Economic Development. Journal of Economic Growth, Vol. 9 , 131-165.

Romer, P. M. (1989). Human Capital and Growth: Theory and Evidence. Cambridge: NBER Working Paper No. 3173.

Sachs, J. D., & Warner, A. (1995). Economic Reform and the Process of Global Integration. Brookings Papers on Economic Activity .

Sala-i-Martin, X. (1997). I Just Run Two Million Regressions. American Economic Review, Vol. 87, No. 2, Conference and Proceeding, (pp. 178-83.).

Sarel, M. (1996). Growth in East Asia What We Can and What We Cannot Infer. Washington D.C: International Monetary Fund.

Shiino, K. (2012). Overview of Trade Agreements in Asia. In Cause and Consequence of Firm FTA Utilization in Asia. Bangkok: Bangkok Reseach Center, IDE-JETRO.

Shirotori, M., Tumurchudur, B., & Cadot, O. (2010). Revealed Factor Intensity Indices at the Production Level. Policy Issues in International Trade and Commodities Study Series No. 44. United Nations Conference on Trade and Development (UNCTD).

United, N. (2006). Banking Sector Lending Behaviour and Efficiency in Selected SECWA Member Countries. United Nations.

Vamvakidis, A. (2002). How Robust is the Growth-Openness Connection: Historical Evidence. Journal of Economic Growth, Vol. 7 , 57-80.

Ventura, J. (1997). Growth and Interdependence. The Quarterly Journal of Economics , 57-84.

Wacziarg, R., & Welch, K. H. (2003). Trade Liberalization and Growth: New Evidence. NBER Working Paper No. 10152.

Wacziarg, R., & Welch, K. (2003). Integration and Growth: An Update. NBER Working Paper 10152.

Wacziarg, R., & Welch, K. (2008). Trade Liberalization and Growth: New Evidence. The World Bank Economic Review, Vol. 22, No. 2 , 187-231.

Winters, A. N., & McKay, A. (2004). Trade Liberaliztion and Poverty: The Evidence So Far. Journal of Economic Literature, Vol. 42 , 72-115.

Wooldridge, J. M. (2005). Introductory Econo¬metrics: A Modern Approach. South Western.

Yeats, A. J. (1989). Shifting Patterns of Comparative Advantage: Manufactured Exports of Developing Countries. Working Paper Series No. 165, The World Bank.

Yue, C. S. (2004). ASEAN-China Free Trade Area. AEP Conference. Hongkong.



DOI: https://doi.org/10.22146/jieb.23268

Article Metrics

Abstract views : 7215 | views : 4558

Refbacks

  • There are currently no refbacks.




Copyright (c) 2017 Journal of Indonesian Economy and Business

Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Journal of Indonesian Economy and Business

Journal

Editorial Team
Focus and Scope
Peer Review Process
Publication Ethics
Screening for Plagiarism

Authors

Author Guidelines
Submission Guidelines
Online Submissions
Copyright Notice
Privacy Statement
Author Fees

Download

Author Pack
Submission Form & Manuscript Template

 

Reviewer

Reviewer Guidelines
Reviewer Acknowledgement

 

Reader

General Search
Achieves
Author index
Title index

 

 

The Journal of Indonesian Economy and Business (print ISSN 2085-8272; online ISSN 2338-5847) is published by the Faculty of Economics and Business Universitas Gadjah Mada, Indonesia. The content of this website is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License

© 2019 Journal of Indonesian Economy and Business 
 Visitor Statistics