Are trade deficits sustainable? Evidence from the ASEAN‐five

Abstract

Purpose

The purpose of this paper is to examine the long‐run sustainability of trade deficits for the ASEAN‐five economies, viz., Indonesia, Malaysia, the Philippines, Myanmar and Thailand, in the presence of structural breaks.

Design/methodology/approach

It utilizes the Saikkonen and Lütkepohl cointegration procedure, allowing for structural breaks in the series. To determine endogenous structural breaks, the Lanne et al. unit root test is applied.

Findings

The study confirms a long run relation between exports and imports for Indonesia, Myanmar and Thailand; and finds sustainable long‐run trade deficit only for Myanmar.

Research limitations/implications

The results suggest that macroeconomic policies in Myanmar have been sustainable and effective in leading exports and imports to the long‐run steady state equilibrium. However, the paper did not find cointegration between exports and imports for Malaysia and the Philippines. This result suggests that macroeconomic policies have failed to establish; a long‐run equilibrium; and sustainable external (import and export) balance. For Indonesia and Thailand while the macroeconomic policies may give the appearance of being effective in establishing a long‐run equilibrium, the relation may not be sustainable, however.

Originality/value

The paper finds that despite the presence of structural breaks, Myanmar represents the only economy among the ASEAN‐five that is on a long‐run sustainable trade deficit. To the author's knowledge this the only work that examines sustainability of trade deficits using time series techniques that incorporates structural breaks in the context of ASEAN‐five with implication for trade openness policy. From that perspective the work can be seen as an original contribution to the literature.

Citation

Tiwari, A.K. (2013), "Are trade deficits sustainable? Evidence from the ASEAN‐five", International Journal of Social Economics, Vol. 40 No. 1, pp. 68-82. https://doi.org/10.1108/03068291311283445