wordpress-themes.org wordpress themes wordpress themes

Stochastic convergence is tested by using the conventional Augmented Dickey-Fuller (ADF) regression which shows a significance result in proving stationarity for yt (Table 15). This indicates long-run convergence between the two trading systems. A major drawback of the standard ADF unit root test procedure is that the power of the test is quite low. To overcome this problem, the paper utilizes cointegration test as suggested by Baharumshah et al..
The residual (Ut) gives stationary result (see table 16) which means that the two regions have long run relationship (convergence). It is worth to say that with the test of convergence, EAR will be there to stay in the long run. The robust finding surely creates optimistic view for EAR. Table 17 shows us that Economic and political factors such as Infrastructure (railways and gross education), governance, taxation policy, industrialization and Democracy have significant effect towards Regionalism (Openness) in East Asia while Inflation gives insignificant role. The signs of coefficient for railways, gross education, governance and industrialization are positive which mean the bigger the variable the more they create Openness. The negative sign of the coefficient for tax describes the opposite relation between corporate tax rate and the future prospect of EAR, the higher the rate the more it will the deteriorate the EAR. The negative sign of democracy is against expectation but it is still rational since democracy is still finding its form in East Asia. We have to define what democracy really means in order to make it works. The insignificant role of inflation for EAR is expected due to the ambiguity given. We have made an interim conclusion that export leads the overall growth in North East Asia. However, it is important to note that Japan’s phase of adjustment towards long run equilibrium is quite slow compared to the likes of Korea and China. This only yields as a stumbling block in forming regionalism in East Asia. The hard task is about making these countries move together in the same phase, which is why regionalism has to take place.
Since regionalism is an abstract term, the use of RPL index is essential. RPL index is a proxy of outward orientation of a country or in other words it is a representation of regionalism. Regionalism in this case goes hand in hand with openness in which it creates trade arrangements that liberalize some sectors in the economy. The ECM simulation gives a clear picture of the current form of openness which is below the equilibrium. It suggests that the trend towards regionalism is still far behind. It somewhat confirms the ineffectiveness of current triangular trade in North East Asia. It is expected that regionalism can eliminates such bias in trade.
Moreover, since North East Asian countries has a big scale of economy, its economic development will substantially affect the neighboring countries in East Asia specifically ASEAN4. It is demonstrated by the large share of China-Japan-Korea growth that affects ASEAN4’s GDP.
In the short run, there is a rivalry competition between China and ASEAN. However, in the long run regionalism is expected to accommodate export growth for East Asia as whole. In a sense of creating integration in East Asia, there is a need to set up more formal institutional mechanisms for trade. It is rational for such mutually dependent countries in the region to institutionalize de facto integration through the establishment of regional arrangements. The growing significance of China, Japan and Korea market for ASEAN4 along with other economic modalities such as product complementarities, comparative advantage and intra industry trade in the region will then serve as the basis for a single East Asian Wide FTA.
The next task is to shape the future of EAR, but then will the future exist? Using the test of convergence, it is found that EAR will be there to stay. The robust finding surely creates optimistic view for EAR. But knowing the future is not enough, we still need to find out the clear path to reach the future. What are the paths then? From a static panel data simulation it is found that sound physical infrastructure, good governance, inflation, competitive taxation policy, sizeable market and the trend towards industrialization are the main factors that serve as building blocks for EAR.
To wrap up, EAR will enable the region to cope with the future challenges of globalization and remain internationally competitive. An integrated East Asia would lead to the advancement in economies of scale, fuller development of production networks. Moreover, Chia stated that EAR could help the less developed East Asian economies which would otherwise become marginalized as they lack the attraction of sizeable market and lack negotiating resources.

Table 15. ADF Test for Term of Trade

ADF Test Statistic -3.519465 1 % Critical V alue * -3.7204
5% Critical Value -2.9850
10% Critical Value -2.6318

Table 16. ADF Test for Cointegration Residual

ADF Test Statistic -5.623714 1% Critical Value* -3.7204
5% Critical Value -2.9850
10% Critical Value -2.6318

Table 17. Factors Affecting Openness

Dependent Variable: OPENNES
Independent Variable Coefficient t-Statistic
LOG(RAILWAYS) 0.115860 2.059379**
TAX -0.029831 -3.530943***
DEMOCRACY -0.004282 -2.051852**
GOVERNANCE 0.257508 3.860438***
INDUSTRY 0.049930 4.861010***
LOG(POPULATION) 0.863634 2.154852**
GROSS EDUCATION 0.011445 2.217493**
INFLATION -0.001545 -0.441719
R-squared 0.99251
Adjusted R-squared 0.98975