Free Trade and Inflation Nexus in Eight Emerging Economies of East Asia

Abstract

In this study, we are surveyed the effect of trade liberalization on the inflation of eight precursor's economy of East Asia during 1990-2018. The main purpose of this research is to test the Romer (1993) Hypothesis for aforementioned countries. He says that there is a negative relationship between inflation and trade openness. For testing this subject, we are used the Britong (2000) unit root test for panel data and, the kao (1999) cointegration test for panel data. Notice to existence of nonstationary variables in the estimated model, we need to use the Kao (1999) co-integration test, and as a result of this test, there is a long run relationship between the variables of the model. The results show that the Romer (1993) hypothesis is confirmed for these countries and free trade reducing the inflation in these countries. Also, the effect of income per capita is negative but the liquidity volume coefficient shows the positive effect of this variable on inflation in these set of countries. In consequence, trade liberalization policy can suggest as a policy to declining inflation in these set of countries.