東盟與東亞經(jīng)濟研究所（ERIA）：東盟六國的貿(mào)易開放、新冠疫情沖擊、外國直接投資、通貨膨脹和產(chǎn)出波動

ERIA-DP-2023-31

ERIADiscussionPaperSeries

No.503

TradeOpenness,COVID-19Shock,ForeignDirect

Investment,Inflation,andOutputVolatilityinSix

ASEANMemberStates

ChinmayaBEHERA1

AssistantProfessor,GoaInstituteofManagement

BadriNarayanRATH2

Professor,IndianInstituteofTechnologyHyderabad

February2024

Abstract:ThisstudyexaminestheeffectoftradeopennessandCOVID-19shockonoutputvolatility.Quarterlydatafrom2010to2022areused,focussingonsixMemberStateswithintheAssociationofSoutheastAsianNations(ASEAN).Theanalysis,conductedthroughtime-seriesregression,revealsthattradeopennesshadanotableimpactonoutputvolatilityinmostASEANMemberStates,excludingThailandandIndonesia.Furthermore,itfoundthatthepandemichadanimpactontheoutputvolatilityofThailandandthePhilippines.Macroeconomicvariableswerealsoincorporated,suchasforeigndirectinvestment(FDI)andinflation.Underthepanelframework,itwasfoundthatbothvariablessignificantlyimpactedoutputvolatility.Thesefindingsindicatethatpolicymakersshouldprioritisetradeopenness

andinflationcontrolduringuncertainevents,suchasaglobalpandemic.

Keywords:Tradeopenness;COVID-19shock;Outputvolatility;Inflation;FDI

JELClassification:F10,F14,F17

1

2

E-mail:chinmayaeco@

E-mail:badrirath@

1

1.Introduction

TheCOVID-19pandemichashadasignificantimpactoneconomicgrowthanddevelopmentacrosstheglobe.Thepandemicanditspreventiveandcontainmentmeasures,suchaslockdownsandtravelrestrictions,causedmajordisruptionstoproduction,supplychains,andglobaltrade(GiroudandIvarsson,2020),causingfluctuationsineconomicgrowth

(i.e.outputvolatility).

Thepandemicaffectedoutputvolatilitythroughdemand-sideshocks.Withtheimplementationoflockdownmeasures,severalcountiesexperiencedasharpdeclineinconsumerdemand,leadingtoreducedoutputandeconomicactivityinsectorsthatdependonconsumerspending,suchastravelandtourism(Behsudi,2020).Thepandemicalsoaffectedoutputvolatilitythroughsupply-sideshocks.Thedisruptionofglobalsupplychainsandclosureoffactoriesandbusinessesledtoareductionintheavailabilityofrawmaterialsandintermediategoods,causingproductiondelaysandincreasingcostsforbusinesses(Butt,2022).Finally,thepandemicledtosignificantuncertaintyandincreasedriskaversionamongstconsumersandinvestors,resultinginlessinvestmentandconsumption,leadinglower

economicactivityandoutput.

Tradeopennessalsocausesoutputvolatilitytorise.Itcanexposeacountry’seconomytoexternalshocksbecauseincreasedtraderesultsingreaterexposuretofluctuationsinglobalcommodityprices,exchangerates,anddemandforexports.Thus,anopeneconomymayexperiencegreaterfluctuationsinoutputthanaclosedeconomy(BalavacandPugh,2016).Tradeopenness,however,canalsoreduceoutputvolatilitybyincreasingcompetition,promotingspecialisation,andfacilitatingaccesstoforeignmarkets.Thisisbecauseincreasedtradecanleadtoamorediversifiedeconomy,reducingdependenceononlyafewindustriesorsectors.Specialisationcanleadtoeconomiesofscaleandincreasedefficiency(Prasadetal.,

2005).

Empiricalresearchontherelationshipbetweentradeopennessandoutputvolatilityismixed.Somestudieshavefoundapositiverelationship(e.g.Bejan,2006;Abubaker,2015),whileothershavefoundanegativerelationshipornosignificantrelationship(Cavallo,DeGregorio,Loayza,2008;GiovanniandLevchenko,2009).Therelationshipdependsona

country’slevelofdevelopment,natureoftrade,andextentofitsfinancialintegration.

Giventhelackofaconsensusontherelationshipbetweentradeopennessandoutputvolatility,thisstudyaimstoinvestigatetheimpactoftradeopennessonoutputvolatilityinthe

AssociationofSoutheastAsianNations(ASEAN),especiallyduringtheCOVID-19pandemic.

2

Nostudieshaveyetexaminedtheeffectoftradeopennesswithexternalshocks-liketheCOVID-19pandemic-onoutputvolatility.ThisstudyconsiderssixASEANMemberStates(i.e.Indonesia,Malaysia,Philippines,Singapore,Thailand,andVietNam,knownastheASEAN-6)asacasestudy.Itisimportanttoknowtheexactmagnitudeoftheimpactoftradeopennessandthepandemiconoutputvolatilityseparatelyandtogether.Byknowingthedegreeofthisimpact,countriescanmakechangestotheirspecialisationsintradeduringtheCOVID-19recovery.Forexample,ifacountrycanfollowamorediversifiedproductionstructure,then

itcanmitigaterisk,whichwillreduceaggregateoutputvolatility.

TheASEAN-6havemanysimilarcharacteristicsandareconsideredfavourablenationsfortradeopenness(Figure2.1).Singaporehasthehighestleveloftradeopenness,followedbyMalaysiaandVietNam.However,duringtheCOVID-19pandemic,tradeopennesswasata

minimumduetoclosedbordersandreducedeconomicactivity.

Figure2.1:TradeOpennessintheASEAN-6

(tradeasa%ofGDP)

ASEAN=AssociationofSoutheastAsianNations,GDP=grossdomesticproduct.

Source:WorldBank,WorldDevelopmentIndicators,

/source/world

-development-indicators.

Figure2.2presentstheoutputoftheASEAN-6.Indonesiahasthehighestoutput.ThePhilippinesexperiencedgreateroutputgrowthin2017,butduringtheCOVID-19pandemic,itwasseverelyimpacted,resultinginhigheroutputvolatilityduringthatperiod.Malaysia,Singapore,Thailand,andVietNamhaveexhibitedrisesinoutputgrowthwithlower

fluctuationsinoutput

3

Figure2.2:OutputfortheASEAN6

ASEAN=AssociationofSoutheastAsianNations,IP=IndexofIndustrialProtection.

Source:WorldBank,WorldDevelopmentIndicators,

/source/world

development-indicators.

TheCOVID-19pandemichasinteruptedtradeflows-notonlyexportsandimportsofgoodsandservicesbutalsooverallglobalvaluechains(GVCs).ThechangeinGVCsduringthepandemicaffectstheforwardsandbackwardsparticipationoftradeforaneconomyandchangesthedomesticandforeigncomponentsofgrossvalue-addedtradetototaltrade.Thischangereflectsoveralltradeopenness,whicheventuallyaffectscertainmacroeconomicvariables.ThisstudyrevisitstheimpactofsuchchangesintradeopennessduetotheGVCson

outputvolatilityusingtheASEAN-6asasampleofnations.

Theoretically,theinternationaltradeofgoodsmarketsallowscountriestospecialiseingoodswithcompetitiveadvantages.Thereductionintradebarriers(i.e.minimisingimporttariffsornon-tariffbarriersthathelpincreasetradeopenness)leadtothegeographicalconcentrationofindustriesandexportspecialisations.Therefore,randomnon-diversifiableshocksthatleadtoerraticshiftsinexportsmakeoutputvolatilitymorepronouncedas

intenationaltradetransactionsareliberalised(RazinandRose,1992).

Thisstudyusesmacroeconomicvariablestoexaminetheimpactoftradeopennessonoutputvolatility.Foreigndirectinvestment(FDI)isacrucialmacroeconomicvariablethat

impactsoutputvolatility.Theoretically,FDIaffectsproductionprocessesinagiveneconomy

4

andhelpsreducecountry-specificshocksthatlessenoutputvolatility.3Yetstudiesrelatedtotradeopennessandoutputvolatility,proxiedbytheIndexofIndustrialProtection(IIP)intheAsia-Pacificregion,arescant.Thisstudyseekstobridgetheresearchgapintheexisting

literature.

Thecontributionofthestudyisthreefold:

(i)First,nostudy,focussingontheASEANregion,hasyetexaminedtheeffectsoftradeopennessonoutputvolatilityproxiedbytheIIP.Thisstudyseekstohelppolicymakers

accessthemagnitudeofsuchanimpactandformulatepoliciesaccordingly.

(ii)Second,althoughsomestudiesinvestigatedtheeffectoftradeopennessonoutputvolatility,fewhaveexploredwhethertradeopennessincreasesthemagnitudeofvolatility–particularlyduringaglobaltradedisruptionliketheCOVID-19pandemic.Aspolicymakersmustmakecorrectiveactionsduringunexpectedevents,thisstudymayhelp

themanticipatethem.

(iii)Third,nostudiesareyetavailablethattakemacroeconomicvariablesintoconsiderationfortheASEAN-6.Macroeconomicvariablesandtheirimpactonoutputvolatilityare

usefulforpolicymakersinstabilisingtheeconomy.

Thenextsectiondetailstheliteraturereview.Section3describesthedataandmethodology.MajorfindingsarediscussedinSection4,whileSection5featuresasummary

andconclusion.

2.LiteratureReview

Theempiricalliteratureontherelationshipbetweentradeopennessandmacroeconomicvolatilityisbroadlydividedintotwocategories.Thefirsthasfocussedonthelinkbetweentradeopennessandvolatilityincrucialmacroeconomicvariableslikeoutputandconsumption(e.g.GiovanniandLevchenko,2009).Thesecondstrandexaminedwhetheropeningtradeenablesafinancialcrisisinaneconomy,therebycreatingvolatilityforkeymacroeconomicindicators(e.g.EasterlyandKraay,2000;CavalloandFrankel,2008).ArecentstudybyMa,Jiang,andYao(2022)alsoexaminedtheimpactoftradeopennessandfinancialopennesson

macroeconomicvolatilityinChina.

3BarrellandGottschalk(2004)foundthattheimpactofFDIonoutputvolatilityisnotstatisticallysignificant.Thus,thenexusbetweenFDIandoutputvolatilitymustalsobestudied.Similarly,inflationcouldbeafactorthatsignificantlyaffectsoutputvolatility(Wolf,2003;WuandRapallo,1997).Inflationmayhaveapositiveimpactonoutputvolatility.Aplethoraofstudieshavealsofocussedontradeopennessandgrossdomesticproduct(e.g.Sarkar,2008;Ramzanetal.,2019;Fatimaetal.,2020).

5

Asglobaltradehasexperiencedexponentialgrowth,tradeopennesshasplayedaroleinincreasingthevolatilityofoutput(Rodrik,1997).NewberyandStiglitz(1984)–inaseminalwork–highlightedtheimportanceoftradeopennessforchangesinoutputvolatilityinindividualsectorsofaneconomy.Ifanindividualsectorismoreopentointernationaltrade,

thenanindustrywithinthatsectorismorevulnerabletoglobalsupplyanddemandshocks.

Severalstudieshavealsofocussedontradeopennessandgrossdomesticproduct(GDP)(e.g.Fatimaetal.,2020).Sarkar(2008)foundthattradeopennesssignificantlyimpactsgrowthinrichandhighlytrade-dependentcountriesbutthatregion-levelanalysishashadmixedresponses.Usingcross-countrypaneldataof51less-developedcountries,hefoundthattradeopennesshadpositiveandsignificantrelationshipsinmiddle-incomecountriesbutnorelationshipinEastAsia.Similarly,Ramzanetal.(2019)foundtheexistenceofanon-linearpatternbetweentradeopennessandGDPgrowthwhentotalfactorproductivityistakenintoconsideration.Theyusedabalancedpanelof82countrydatafrom1980to2014.UsingsystemGMM,theyfoundtheexistenceofanindirectrelationshipbetweentradeopennessandGDP

whenhumancapitalaccumulationisconsidered.

Finally,thereissomeliteraturethatfocussedontradeopennessandGDPvolatility(e.g.NguyenandBui,2021;Maetal.,2022).Bejan(2006)foundthattradeopennesscausesmoreoutputvolatilityindevelopingcountriesthanindevelopedones.GiovanniandLevchenko(2009),Abubaker(2015),andKimetal.(2016)foundthatsectorsopenforinternationaltradeandspecialisationcauseaggregateoutputvolatility.However,Haddadetal.(2013)andBalavacandPugh(2016)notedthatcountrieswithdiverseexportbasketshaveanegative

relationshipwithoutputvolatility.Finally,Mireku,AnimahAgyei,andDomeher(2017)found

thatshort-andlong-termeconomicgrowthvolatilitycauseachangeinthedegreeoftrade

openness.

3.DataandEmpiricalApproach

Thisstudyusesquarterlydatafrom2010to2022fortheanalysis.Data,relatedtototalexports,totalimports,IIP,FDI,andinflation,werecollectedonaquarterlybasisfortheASEAN-6fromtheCEICDatabase.4Tradeopennessismeasuredas(Export+Import)/GDP.Further,aninteractionvariablewascreatedbytakingtradeopennessmultipliedbythenumberofCOVID-19confirmedcasestoseehowtheytogetherimpactoutputvolatility.Thenecessary

conversionmethodsareappliedtomakemostofthevariablesunit-free.

4ISIEmergingMarketsGroup,CEICDatabase,/en

6

Toexaminetheresearchobjective,thestudyusesbothtime-seriesdataandpaneldata

andcomparestheresultsforeachASEAN-6countryandasagroup.Threemodelsarerun:

=0+1+1+(

1)

=0+1+1+1?19+2??19+(

2

)

=0+1+1+1?19+2??19+

3+4+(

3)

whereVolatilityisthevarianceofthelogofIIP,andOutputreferstothelogofIIPatalevelthatcanbetreatedasacontrolvariable.TOreferstotradeopenness,andCOVID-19confirmedcases,FDI,andinflation(Inf)areconsidered.??19istheinteractioneffectbetweenCOVID-19confirmedcasesandtradeopenness.,,andaretheunknowncoefficientstobeestimated.Finally,ireferstocountry,treferstotime,anduisanerrortermthatfollowsIID(0,2).Theequations(1),(2),and(3)areestimatedusingtime-seriesandpaneldataanalysis.Allcorevariablesarecheckedforstationarity,cross-dependency,andendogeneity.Then,appropriateeconometricstoolssuchasordinaryleastsquares(OLS)

regressionandappropriatepaneldatamodelsareused.

4.MajorFindings

TheregressiontestresultsfortheASEAN-6areprovidedinTable1.Thestudyobservesthatinmostcountries,exceptSingapore,outputhadasignificantandpositiveimpactonvolatility.Furthermore,inMalaysia,thePhilippines,andVietNam,tradeopennesshadanunfavourableimpactonoutputvolatility,likelyduetoreducedeconomicactivitycausedbytheCOVID-19pandemic.Incontrast,inThailand,tradeopennesshadapositiveandnegligibleimpactonoutputvolatility.TradeopennessinthePhilippineshadanegativeandstatistically

significantimpactonoutputvolatility.

7

Table1:RegressionTestResults

Indonesia

Malaysia

Philippines

Singapore

Thailand

VietNam

Constant

0.028*

(0.00)

0.026*

(0.00)

–0.011

(0.70)

0.037*

(0.00)

0.011*

(0.00)

0.000

(0.75)

Output

–0.013*

(0.00)

–0.012*

(0.00)

0.007

(0.60)

–0.018*

(0.00)

–0.005*

(0.00)

0.002***

(0.09)

Trade

–0.000

–0.002*

–0.086**

0.005*

0.001

–0.005*

openness

(0.70)

(0.00)

(0.01)

(0.00)

(0.88)

(0.00)

Note:*,**,and***indicate1%,5%,and10%levelsofsignificance,respectively.Probabilityvaluesareinparenthesis.

Source:Authors.

Next,theCOVID-19pandemicisincluded,andtheregressionresultsarepresentedinTable2.Thefindingsindicatethat,forThailand,theCOVID-19pandemichadanegativeimpactonoutputvolatility.Further,theinteractionvariablesarefoundtohavenoeffectonoutputvolatility.TheCOVID-19pandemicaffectedoutputvolatilityadverselyinthePhilippinesandThailand.Indonesia,Malaysia,Singapore,andVietNamsawinsignificant

impactsfromtheCOVID-19pandemic.

8

Table2:RegressionTestResultswithCOVID-19Pandemic

Indonesia

Malaysia

Philippines

Singapore

Thailand

VietNam

Constant

0.026*

(0.00)

0.020*

(0.00)

–0.099*

(0.00)

0.026*

(0.00)*

0.006*

(0.00)

–0.000

(0.83)

Output

–0.012*

(0.00)

–0.009*

(0.00)

–0.028**

(0.02)

–0.013*

(0.00)

–0.002*

(0.00)

0.002*

(0.00)

Tradeopenness

–0.001

(0.41)

0.003***

(0.09)

–0.002

(0.94)

0.007*

(0.00)

0.000

(0.38)

–0.005*

(0.00)

COVID-19

0.000

(0.49)

-0.000

(0.74)

–0.008*

(0.00)

–0.000

(0.48)

–0.000*

(0.00)

–0.000

(0.12)

Interactiondummy

0.000

(0.33)

-0.000

(0.27)

–0.011

(0.25)

–0.000

(0.66)

–0.000

(0.92)

0.000

(0.28)

Note:*,**,and***indicate1%,5%,and10%levelsofsignificance,respectively.Probabilityvaluesareinparenthesis.

Source:Authors.

Apanelregressionisthenconductedonequation(1),andtheoutcomesaredocumentedinTable3.Theanalysisshowsthatbothoutputandtradeopennesshavesignificantandnegativeeffectsonoutputvolatilityinboththefixedandrandomeffectmodels.Thepossiblereasonsarethreefold.First,whencountriesliketheASEAN-6becomemoreopentotrade,externalshocks–suchaschangesinglobaldemandorsupply–canresultingreaterfluctuationsinoutputandgreateruncertaintyfordomesticproducts,whichcan,inturn,leadtogreatervolatilityinoutput.Second,increasedtradeopennesscanalsoleadtogreatercompetitionfordomesticproducts,particularlyinindustrieswherethecountriesdonothavecomparativeadvantages.Thiscanleadtofirmsbeingforcedtocutcostsandtoreduceoutput,particularlyduringperiodsoflowdemand,hencenegativeoutputvolatility.Finally,tradeopennesscanalsoleadtogreatercapitalflowsintoandoutofacountry,whichcanresultingreaterexchangeratevolatility.Thiscanaffectthecompetitivenessofdomesticfirmsandlead

togreatervolatilityinoutput.

Table3:PanelFixedandRandomEffectModels

9

FixedEffect

RandomEffect

Constant

0.053*

(0.00)

0.053*

(0.00)

Output

–0.022**

(0.01)

–0.022*

(0.00)

Tradeopenness

–0.001*

(0.00)

–0.001*

(0.00)

Note:*and**indicate1%and5%levelsofsignificance,respectively.Probabilityvaluesareinparenthesis.

Source:Authors.

AfterincorporatingtheCOVID-19andinteractionvariables,panelregressionanalysisisthenconducted(Table4).Thefindingsindicatethat,intherandomeffectmodel,theCOVID-19pandemichadastatisticallysignificantandnegligibleimpactonoutputvolatility.Moreover,tradeopennessisfoundtohaveanadverseimpactonoutputvolatilityunderbothfixedandrandomeffectmodels.Thesefindingsarelargelyconsistentwiththoseobtainedthroughthetime-seriesanalysis,withonlyafewexceptions.ItisfurtherobservedthattheCOVID-19

pandemichadstatisticallysignificantbutnegligibleimpactonoutputvolatility.

Table4:PanelFixedandRandomEffectModelswithCOVID-19Pandemic

FixedEffect

RandomEffect

Constant

0.054*

(0.00)

0.055*

(0.00)

Output

–0.023**

(0.01)

–0.022*

(0.00)

Tradeopenness

–0.002*

(0.00)

–0.002*

(0.00)

COVID-19

–0.000

(0.86)

–0.000*

(0.00)

Interactionvariable

–0.000

(0.25)

–0.000

(0.28)

Note:*and**indicate1%and5%levelsofsignificance,respectively.Probabilityvaluesare

inparenthesis.

Source:Authors.

Next,ananalysisusingmacroeconomicvariablesinequation(3)isconducted(Table

5).TradeopennessisfoundtohaveanegativeeffectonoutputvolatilityinIndonesia,

10

Singapore,Thailand,andVietNam–butapositiveeffectinMalaysia.TheCOVID-19pandemichadapositiveimpactonoutputvolatilityinIndonesiaandanegativeimpactinthePhilippinesandThailand.Theinteractiondummyhadamixedresponseonoutputvolatility,withapositiveimpactinIndonesiaandanegativeimpactinthePhilippines.Similarly,inflationhadmixedeffects(i.e.bothpositiveandnegative)onoutputvolatility.FDIhadanegativeimpactonoutputvolatilityonlyinVietNam.Inflationhadmixedimpactsonoutputvolatility

acrosstheASEAN-6,whileFDInegativelyaffectedoutputvolatilityinVietNam.

Table5:RegressionResultswithMacroeconomicVariables

Indonesia

Malaysia

Philippines

Singapore

Thailand

Viet

Nam

Constant

0.037*

(0.00)

0.034*

(0.00)

–0.343*

(0.00)

0.003*

(0.57)

0.019*

(0.00)

0.007**

(0.04)

Output

–0.012*

(0.00)

0.003

(0.40)

–0.037*

(0.00)

–0.014*

(0.00)

–0.001*

(0.00)

0.003*

(0.00)

Tradeopenness

–0.004*

(0.00)

0.006*

(0.00)

–0.021

(0.40)

0.010*

(0.00)

–0.001*

(0.00)

–0.002**

(0.01)

COVID-19

0.000**

(0.01)

0.000

(0.74)

–0.010*

(0.00)

–0.000

(0.24)

–0.000*

(0.00)

–0.000

(0.43)

Interaction

0.001*

–0.000

–0.008

–0.001**

0.000

0.000

dummy

(0.00)

(0.50)

(0.20)

(0.01)

(0.92)

(0.88)

FDI

–0.000

(0.45)

–0.000

(0.87)

0.001

(0.59)

–0.000

(0.19)

–0.000

(0.97)

–0.002**

(0.01)

Inflation

–0.004*

(0.00)

–0.020*

(0.00)

0.231*

(0.00)

0.013*

(0.00)

–0.008*

(0.00)

–0.000

(0.46)

FDI=foreigndirectinvestment.

Notes:*and**indicate1%and5%levelsofsignificance,respectively.Probabilityvaluesareinparenthesis.Source:Authors.

Panelfixedandrandomeffectmodelsarethenappliedtomacroeconomicvariables(Table6).TheanalysisrevealsthattradeopennesshadanegativeimpactonoutputvolatilityandthattheCOVID-19pandemichadanegativeimpactonoutputvolatilityinboththefixedandrandomeffectmodels.Itisevidentthatanyunwantedshockstotheeconomyinevitablyaffectoutputvolatility.Nevertheless,apositiveimpactofinteractionvariablesonoutputinbothmodelsisfound.Somediscrepanciesinthefindingsarealsoobserved.Forinstance,FDI

andinflationhadapositiveandsignificantimpactonoutputvolatilityinthefixedeffectmodel

11

butanegativeimpactintherandomeffectmodel.MixedresponsesofFDIandinflationon

outputvolatilityacrossmodelsarealsofound.

Table6:PanelFixedandRandomEffectModelswithMacroeconomicsVariables

FixedEffect

RandomEffect

Constant

0.034**

(0.02)

0.019*

(0.00)

Output

–0.006

(0.13)

–0.031*

(0.00)

Tradeopenness

–0.012*

(0.00)

–0.023*

(0.00)

COVID-19

–0.001*

(0.00)

–0.000**

(0.05)

Interactionvariable

0.001*

(0.00)

0.003*

(0.00)

FDI

0.001***

(0.06)

–0.005*

(0.00)

Inflation

0.341*

(0.10)

–0.496*

(0.00)

FDI=foreigndirectinvestment.

Note:*,**,and***indicate1%,5%,and10%levelsofsignificance.Probabilityvaluesareinparenthesis.Source:Authors.

Asaresultofreceivingmixedfeedbackfromthetime-seriesregressionsandrecognisingcertainlimitationsofpanelfixedandrandommethods,panelcorrectedstandarderrorsarethenusedtoproducemorereliableoutcomes(Table3.7).Theseresultsindicatethattradeopennesshadanadverseeffectonoutputvolatility–afindingdiscussedearlier.Moreover,theCOVID-19pandemichadbothasignificantandinsignificantimpactonoutputvolatility.Onlythe

PhilippineswassignificantlyaffectedbytheCOVID-19pandemic.

Theinteractionofpandemicandtradeopennessisfoundtohavehadapositiveimpactonoutputvolatility.TheimpactofFDIonoutputvolatilityisbothstatisticallysignificantbutnegligible.Thereasonsforthisoutcomecouldbecompetitionandefficientallocationofresources.TheentryofforeignfirmsthroughFDIcouldresultincompetitionwithdomesticcompanies,whichmayleadtoadecreaseinoutputandanincreaseinvolatility.Additionally,FDIcouldcauseresourcemisallocationifitdivertedresourcesfromthedomesticeconomy'sproductivesectorstoforeign-ownedenterprises.Thisshiftcouldleadtoareductioninoutput

andanincreaseinvolatility.

12

Next,inflationhadastatisticallysignificantandnegativeimpactonoutputvolatility.Thereasonscouldbeuncertainty,reducedpurchasingpower,andinputcost.Highinflationcouldleadtouncertaintyintheeconomy,whichcouldcausebusinessesandinvestorstobecomehesitantaboutnewinvestments,resultinginloweroutputandincreasedvolatility.Further,highinflationcouldreducethepurchasingpowerofconsumers,whichcouldleadtolowerdemandforgoodsandservices,ornegativevolatility.Finally,inflationcouldcreatehigherinputcostsforbusinesses,suchashigherwagesorrawmaterialcosts.Thiscouldspurlowerprofitsandreducedinvestment,resultinginloweroutputandincreasedvolatility.FromTable7,allvariablesarestatisticallysignificantandhavenegativeimpactsonoutputvolatility,exceptthe

interactionvariable.

Table7:PanelCorrectedStandardErrorswithMacroeconomicsVariables

PanelCorrectedStandardErrors

Constant

–0.193*

(0.00)

Output

–0.031*

(0.00)

Tradeopenness

–0.023*

(0.00)

COVID-19

–0.000**

(0.02)

Interactionvariable

0.003*

(0.00)

FDI

–0.005*

(0.00)

Inflation

–0.49*

(0.00)

FDI=foreigndirectinvestment.

Note:*and**indicate1%and5%levelsofsignificance,respectively.Probabilityvaluesareinparenthesis.Source:Authors.

5.Conclusion

Thestudyresultsshowthatoutputhadasignificantandpositiveimpactonvolatilityinmostcountries,exceptSingapore,whereithadanegativeimpact.Additionally,thestudyrevealsthattradeopennesshadanunfavourableimpactonoutputvolatilityinMalaysia,thePhilippines,andVietNam.InThailand,ithadapositiveimpactonoutputvolatility.Thenegativeimpactcouldbeassignedtoexternalshocks,competition,and/orfluctuationsin

capitalflows.

13

Moreover,thestudyrevealsthattheCOVID-19pandemichadadetrimentaleffectonoutputvolatilityinThailandbecauseofeconomicuncertainty.TheinteractionvariabledidnothaveasignificantimpactonoutputvolatilityforthesixASEANcountries,however.Applyingapanelregressionmodel,thestudydidfindthattheCOVID-19pandemichadasignificantandnegativeimpactonoutputvolatilityundertherandomeffectmodel.Tradeopennesshada

negativeimpactonoutputvolatilityunderboththefixedandrandomeffectmodels.

Finally,usingpanelcorrectedstandarderrors,itisfoundthattradeopenness,COVID-19,FDI,andinflationnegativelyaffectedoutputvolatilityinASEAN-6.Thepossiblereasonsincludeexternalshocks,economicuncertainty,competition,and/orreduced

purchasingpower.

Policymakersshouldthustakecorrectivemeasuresduringuncertainevents,astheyhavethepotentialtocreatedevastatingimpactsonoutputvolatility.Furthermore,tradeopennessmostlycontributesnegativelytooutputvolatility;policymakersareadvisedtominimisetheimpactofexternalshocksonoutputvolatility.AsFDIfailedtoyieldpositiveresultsonoutputvolatilitybecauseofcompetition,policymakersshouldcontrolinflation

duringuncertaineventslikeglobalpandemics.

14

References

Abubaker,R.(2015),‘TheAsymmetricImpactofTradeOpennessonOutputVolatility’,

EmpiricalEconomics,49(3),pp.881–87.

Al-Thaqeb,S.A.,B.G.Algharabali,andK.T.Alabdulghafour(2022),‘ThePandemicandEconomicPolicyUncertainty’,InternationalJournalofFinance