The Nexus of International Trade and Inflation on ASEAN-5 Countries’ Economic Growth: The Mediating Role of Exchange Rates

Abstract

Since the last decade, ASEAN countries have been chosen by the developed countries as one of the favorite trading partners. The establishment of ASEAN allows member countries to accelerate their open trading activities worldwide, especially among ASEAN members. However, the export and import activity of the ASEAN-5 countries have interconnected with inflation and exchange rates, which will affect economic growth. The research goal is to look into the impact of international commerce on the economic growth of ASEAN's founding countries, namely Indonesia, Thailand, Malaysia, Singapore, and the Philippines. We investigated data since the inception of the ASEAN body 53 years to test the hypotheses and run it using data panel regression with differentiation technique to analyze the data. We used EViews 9th version software to run the data. After the multicollinearity and heteroscedasticity tested, the result shows that the exchange rate significantly mediates international trade (proxied by export and import activity) and the inflation rate on economic growth negatively. While for the direct relationship, import and inflation significantly affect the exchange rate. While export and inflation affect economic growth indirectly effect. Thus, the exchange rate intervenes in a parallel manner between inflation and economic growth and a fully mediate between import and economic growth. The discussions and implications will explain further.