The Contribution of direct foreign investment and interntional trade on economic develoment in Myanmar

Abstract

From 1962 to 1988, Myanmar had a socialist economy. Myanmar was slow to take up the issues of regional economic cooperation. Once considered one of the wealthiest South-East Asian countries, Myanmar's economic problems hit rock bottom in 1987. By the late 1980s, the Myanmar economy lowed down was due to the low productivity and inefficiency of state-owned enterprises, low levels of skill, and a shortage of capital and technology. In response to the severe economic crisis and domestic unrest, the State Law and Order Restoration Council (SLORC) took the reins of government in 1988 and embarked on a new course for the economy. SLORC reversed many of the socialist era policies and implemented several economic reforms, including new laws, regulations, operating methods, and reorganization of government agencies in an effort to utilize market principles to jumpstart the sluggish economy. This paper examines the role of trade policy regimes in conditioning the impact of foreign direct investment (FDI) on growth performance in investment receiving (host) countries through a case study of Myanmar. The methodology involves estimating a growth equation, which provides for capturing the impact of FDI interactively with economic openness on economic growth, using data for the period 1980-2004. The results support the ‘Bhagwati’ hypothesis that, other things being equal, the growth impact of FDI tends to be greater under an export promotion (EP) trade regime compared to an import-substitution (IS) regime. Therefore, policy implications we can draw from our empirical results seem to be important. For Myanmar to benefit from the growth-enhancing effects of foreign direct investment, it should continue to liberalize its trade transaction. For Myanmar to benefit from technology transfer and spillover effects, FDI should be encouraged and it should be accompanied with trade openness. In an environment of trade restrictions, FDI inflows cannot be a catalyst for long run economic growth. The positive interactive impact of FDI and trade openness on economic growth would probably hold in Myanmar.