$$$ begets $$$.

Readership: All
Theme: Community
Length: 750 words
Reading Time: 4 minutes

One of my students wrote an exceptional thesis on international trade, and I want to share her findings with my readers. Excerpts from her thesis follow [emphasis mine].

Abstract

“This study aims to find the relationship between international trade and economic growth in the Association of South-East Asian Nations (ASEAN countries). Three independent variables were used to measure economic growth [the dependent variable] … international trade, the exchange rate, and foreign direct investment (FDI). This study employs a Pedroni panel cointegration test to examine the data from 2004 to 2015. The results show that there is a long-term cointegrated relationship between international trade and economic growth in the ASEAN countries. International trade and direct, foreign investment also have a long-term, positive impact on economic growth. Meanwhile, the exchange rate also has a long-term, negative influence on economic growth. In addition, there is an indirect relationship and bidirectional causalities between the GDP and international trade, as well as between the GDP and the exchange rate. On the other hand, there is a direct relationship and a bidirectional causality between international trade and the exchange rate. The FDI leads GDP, international trade, and exchange rates. Our results suggest that international trade must be supported by government policies that aim to enhance the financing of new investments for economic growth.”

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Excerpts

“…international trade and the exchange rate will affect economic growth indirectly.  Regarding the direct and indirect effects of causality indicated by this study, there is a bidirectional causality between the GDP and international trade, as well as between the GDP and the exchange rate.

…international trade has significant, direct effects on the exchange rate, with a significance of 1%. So, there is a bidirectional relationship between international trade and the exchange rate.  […]  In addition, the results indicate that FDI plays an important role for ASEAN countries.  FDI leads the GDP, international trade, and exchange rates, and this was proved by the results… This study also supports the previous research of Nistor (2014), which mentions that FDI can be a supporting factor for a country to compete in international trade, and to maintain the economic growth of a country. …these results also suggest that each of the ASEAN countries first needs to create the conditions of a stable political-economic climate that is conducive to investment, such that the country will be able to attract sources of foreign funding more easily.”

“…there is a long-term relationship between international trade, the exchange rate, and FDI, with the economic growth in 10 ASEAN countries. According to the FMOLS and DOLS test results, international trade and FDI have positive effects on the economic growth in 10 ASEAN countries, while the exchange rate has a negative impact on economic growth. In addition, there are indirect relationships and bidirectional causalities between the GDP and international trade, as well as between the GDP and the exchange rate. On the other hand, there is a direct relationship and a bidirectional causality between international trade and the exchange rate. FDI leads the GDP, international trade, and exchange rates.”

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Epilogue

In plain terms, all this means that prosperity follows investments. Wherever investment capital is directed, economic growth will flourish.  It is therefore concluded that underdeveloped countries that wish to develop their economies should be pulling out all the stops to attract foreign investment.

As a side note, a couple previous posts examined how unscrupulous investors are r@p!ng developing economies and nations by investing in their economies and infrastructure and also placing them in debt. (See links below.) But underdeveloped nations are still biting the bait nevertheless.

This also applies to the personal.  For the typical man, the applied logic is simple. If you spend money on your house, then your house will be nicer. If you spend money on maintaining your car, then your car will run better and last longer. And so on. Whatever you spend time and $$$ on will blossom and develop.

In simple words, what you feed will grow. The Law of Activity applies.

I think these results are rather intuitive, but now it has been ¡Sc1eNt!f!c@lly! proven.

It needs to be mentioned that not every investment earns positive returns in this way. Spending money on getting an education, or on women who are not under your authority for example, may or may not bring favorable returns. Also, don’t forget about the cost of opportunity.

You have about 70 years to earn and spend. Whatever you spend your energy, money, and time on is what will develop into your legacy over your lifetime. Choose wisely and may the good Lord bless you.

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