PRODUCT VARIETY, TRADE AND ECONOMIC GROWTH: PANEL DATA ON SIX ASEAN COUNTRIES

The new growth theory proposes a new possible route by which product variety may affect economic growth performance of a country. Assuming product variety as proxy of technological progress, the product variety framework facilitates another insight to the presence of per capita income and of total factor productivity differences across countries. A number of empirical studies begin to directly test the hypothesis and generally find supportive evidences. However, to the best of author�s knowledge, the availability of this line of research is relatively still sparse, with a greater magnitude to the studies focusing on developing countries. Motivated by this circumstance, this study is made with a sole intention to fill this gap by observing ASEAN-6 countries. This study contains twofold analyses. In the first phase of analysis, this paper utilizes entropy measure to estimate product variety index calculated from three- and fivedigit SITC revision 3 for the period of 1989 to 2008. In the second phase of analysis, this study empirically tests the linkage between the computed indices and economic growth during the period of observation by employing linear panel data estimation. In summary, this study finds that the ASEAN-6 in average experience slight increased in their effective export varieties while their import varieties are in average declined during 1989-2008. Based on panel regressions with the three-digit index level, this study finds three main findings. First, the differences in per capita income and labor productivity growth rates across ASEAN-6 are largely due to the difference in the growth rate of capital accumulation. Second, effective export variety growth rate significantly influences per capita income growth rate, but insignificantly affects labor productivity growth rate across ASEAN-6. Lastly, effective import variety growth rate insignificantly affects per capita income and labor productivity growth rates. The immediate conclusions from these findings are that the main characteristic of growth experienced by ASEAN-6 seems to be that of extensive capital accumulation and strong outward-oriented pro-trade regime. Hence, this study parallels with Funke and Ruhwedel (2001b, 2005) and Saviotti and Frenken (2008), while provides additional insight for Young (1995).