Impact of permanent income and relative export and import prices on export and import values in Asean

Abstract

This study aims to prove that permanent income and relative prices play a crucial role in determining the level of export and import of ASEAN members. The data set used is from 1967 to 1996. Perfect substitutes models specify that demand for goods depend on income and price. The first objective is to estimate the effect of permanent income and relative prices on export and import in order to define income and price elasticities by using the ordinary least squares technique. Another objective is to study magnitude of long run relationship between permanent income and relative prices to export and import using Johensen Cointegration test. The results confirm that permanent income and relative export and import prices significantly effect the ASEAN members’ export and import values in imperfect substitutes model. Only one exception; Thai relative import prices were found to insignificant effect Thai import values from Japan. The results of study show that prices elasticities are contradictious with the common believe. In the exception of Philippine export and import values to Japan and Singaporean export values to the United States. Another results reveal that permanent income and relative price significantly effect ASEAN members’ export and import values in long run, except that Philippine relative prices were found to insignificantly effect Philippine import values from the United States. Furthermore, long run relationship between ASEAN member’s relative export prices and ASEAN member’s export values to Japan and the United States were found to be inconsistent to common believe. A primary cause of these problems may stem from the fact that, as ASEAN members’ relative export and import prices are increase, ASEAN member’s export and import are also increase instead of decreasing. Because the period under consideration was coincident with the booming period of ASEAN economies, as a result, changing consumer’s behavior to favor luxury products rather than necessary products may influence the significantly outcomes.