Romer's Hypothesis Validation and Threshold of Trade Openness in ASEAN
Abstract
The purpose of this study is to test and analyze Romer's hypothesis regarding the impact of trade openness on inflation. In addition, this study also aims to measure the threshold point of trade openness. The method used is the System GMM and the Threshold Panel for the period 2010-2021. The estimation results show that trade openness has a significant effect on inflation. The sign of the coefficient of trade openness is positive, meaning that an increase in trade openness will lead to higher inflation. These results mean that Romer's hypothesis is invalid in ASEAN. The government is expected to be able to reduce the degree of trade openness by re-establishing agreements with bilateral and multilateral countries. If the trade agreement is profitable then it is continued, if it is not profitable it is better not to continue.
Keywords: Trade Openness, Inflation, System GMM, ASEAN
Full Text:
pdfReferences
Arsić, M., Mladenović, Z., &Nojković, A. (2022). Macroeconomic performance of inflation targeting in European and Asian emerging economies. Journal of Policy Modeling. https://doi.org/10.1016/J.JPOLMOD.2022.06.002
Bems, R., Caselli, F., Grigoli, F., & Gruss, B. (2021). Expectations’ anchoring and inflation persistence. Journal of International Economics, 132, 103516. https://doi.org/10.1016/J.JINTECO.2021.103516
Bilici, B., &Çekin, S. E. (2020). Inflation persistence in Turkey: A TVPestimation approach. The Quarterly Review of Economics and Finance, 78, 64–69. https://doi.org/10.1016/J.QREF.2020.04.002
Boehm, C. E., & House, C. L. (2019). Optimal Taylor rules when targets are uncertain. European Economic Review, 119, 274–286. https://doi.org/10.1016/J.EUROECOREV.2019.07.013
Bowdler, C., & Malik, A. (2017). Openness and inflation volatility: Panel data evidence. The North American Journal of Economics and Finance, 41, 57– 69. https://doi.org/10.1016/J.NAJEF.2017.03.008
Burdekin, R. C. K., Denzau, A. T., Keil, M. W., Sitthiyot, T., & Willett, T. D. (2004). When does inflation hurt economic growth? Different nonlinearities for different economies. Journal of Macroeconomics, 26(3), 519–532. https://doi.org/10.1016/J.JMACRO.2003.03.005
Carvalho, C., Nechio, F., & Tristão, T. (2021). Taylor rule estimation by OLS. Journal of Monetary Economics, 124, 140–154. https://doi.org/10.1016/J.JMONECO.2021.10.010
Chan, K. S., Dang, V. Q. T., & Lai, J. T. (2018). Capital market integration in ASEAN: A non-stationary panel data analysis. The North American Journal of Economics and Finance, 46, 249–260. https://doi.org/10.1016/J.NAJEF.2018.04.010
Choi, S., Furceri, D., Loungani, P., & Shim, M. (2022). Inflation anchoring and growth: The role of credit constraints. Journal of Economic Dynamics and Control, 134, 104279. https://doi.org/10.1016/J.JEDC.2021.104279
Everaert, G. (2014). A panel analysis of the fisher effect with an unobserved I(1) world real interest rate. Economic Modelling, 41, 198–210. https://doi.org/10.1016/J.ECONMOD.2014.05.005
Fahmy, Y. A. F., & Kandil, M. (2003). The Fisher effect: new evidence and implications. International Review of Economics & Finance, 12(4), 451–465. https://doi.org/10.1016/S1059-0560(02)00146-6
Freeman, M. C., Groom, B., Panopoulou, E., & Pantelidis, T. (2015). Declining discount rates and the Fisher Effect: Inflated past, discounted future? Journal of Environmental Economics and Management, 73, 32–49. https://doi.org/10.1016/J.JEEM.2015.06.003
Fry-McKibbin, R., Hsiao, C. Y. L., & Martin, V. L. (2018). Global and regional financial integration in East Asia and the ASEAN. The North American Journal of Economics and Finance, 46, 202–221. https://doi.org/10.1016/J.NAJEF.2018.04.007
Ghosh, A. (2014). How do openness and exchange-rate regimes affect inflation? International Review of Economics & Finance, 34, 190–202. https://doi.org/10.1016/J.IREF.2014.08.008
Jafari Samimi, A., Ghaderi, S., Hosseinzadeh, R., &Nademi, Y. (2012). Openness and inflation: New empirical panel data evidence. Economics Letters, 117(3), 573–577. https://doi.org/10.1016/J.ECONLET.2012.07.028
Jin, J. C. (2006). Openness, growth, and inflation: Evidence from South Korea before the economic crisis. Journal of Asian Economics, 17(4), 738–757. https://doi.org/10.1016/J.ASIECO.2006.07.001
Kwark, N. S., & Lim, H. (2020). Have the free trade agreements reduced inflation rates? Economics Letters, 189, 109054. https://doi.org/10.1016/J.ECONLET.2020.109054
Lin, F., Mei, D., Wang, H., & Yao, X. (2017). Romer was right on openness and inflation: Evidence from Sub-Saharan Africa. Journal of Applied Economics, 20(1), 121–140. https://doi.org/10.1016/S1514-0326(17)30006-5
Michau, J. B. (2019). Monetary and fiscal policy in a liquidity trap with inflation persistence. Journal of Economic Dynamics and Control, 100, 1–28.
Oloko, T. F., Ogbonna, A. E., Adedeji, A. A., & Lakhani, N. (2021). Fractional cointegration between gold price and inflation rate: Implication for inflation rate persistence. Resources Policy, 74, 102369. https://doi.org/10.1016/J.RESOURPOL.2021.102369
Panopoulou, E., & Pantelidis, T. (2016). The Fisher effect in the presence of timevarying coefficients. Computational Statistics & Data Analysis, 100, 495– 511. https://doi.org/10.1016/J.CSDA.2014.08.015
Plummer, M. G. (2006). ASEAN–EU economic relationship: Integration and lessons for the ASEAN economic community. Journal of Asian Economics, 17(3), 427–447. https://doi.org/10.1016/J.ASIECO.2006.04.004
Prasetyo, A. S. (2021a). Analisis Respon Pertumbuhan Ekonomi Indonesia Akibat External Shock Amerika Serikat dan China. EJournal Ekonomi Bisnis Dan Akuntansi, 8(1), 20–32.
Prasetyo, A. S. (2021b). CONVERGENCE OF FINANCIAL DEVELOPMENT IN ASEAN BASED ON PRIVATE CREDIT AND LIQUID LIABILITIES INDICATORS. BISMA: JurnalBisnis Dan Manajemen, 15(1), 13–24.
Sachsida, A., Carneiro, F. G., & Loureiro, P. R. A. (2003). Does greater trade openness reduce inflation? Further evidence using panel data techniques. Economics Letters, 81(3), 315–319. https://doi.org/10.1016/S0165- 1765(03)00211-8
Smithin, J. (2005). The Real Rate of Interest, the Business Cycle, Economic Growth and Inflation: An Alternative Theoretical Perspective. The Journal of Economic Asymmetries, 2(2), 1–19. https://doi.org/10.1016/J.JECA.2005.02.001
Suh, S., & Kim, D. (2021). Inflation targeting and expectation anchoring: Evidence from developed and emerging market economies. The North American Journal of Economics and Finance, 58, 101535. https://doi.org/10.1016/J.NAJEF.2021.101535
Thanh, S. D. (2015). Threshold effects of inflation on growth in the ASEAN-5 countries: A Panel Smooth Transition Regression approach. Journal of Economics, Finance and Administrative
Science, 20(38), 41–48. https://doi.org/10.1016/J.JEFAS.2015.01.003 Watson, A. (2016). Trade openness and inflation: The role of real and nominal price rigidities. Journal of International Money and Finance, 64, 137–169. https://doi.org/10.1016/J.JIMONFIN.2016.02.002
Wu, J. W., & Wu, J. L. (2018). Does a flexible exchange rate regime increase inflation persistence? Journal of International Money and Finance, 86, 244– 263. https://doi.org/10.1016/J.JIMONFIN.2018.05.002
DOI: https://doi.org/10.21107/bep.v3i1.18500
Refbacks
- There are currently no refbacks.
