THE IMPACT OF TERMS OF TRADE AND ITS VOLATILITY ON ECONOMIC GROWTH:A CASE OF ASEAN COUNTRIES

In this paper, the main purpose is to analyze the relationship between terms of trade and its volatility on economic growth, considering that both net barter and income terms of trade and their volatilities are one of crucial factors to determine growth. By utilizing annual data of ASEAN countries, which are four emerging market economies, for the period 1981-2010, using Unit root test, Johansen cointegration test, Vector error correction model (VECM), and Impulse response function are discussed to accomplish this study. In this paper, Johansen cointegration technique has been adopted and found the existence of long run relation between GDP per capita and terms of trade and its volatility in ASEAN. The results of the level and volatility of net barter terms of trade and income terms of trade of Indonesia and the Philippines, where depend largely on domestic consumption, have an unclear effect on economic growth. In case of countries relied deeply on international trade like Malaysia and Thailand, both net barter terms of trade and income terms of trade as well as their volatilities are economic factors which are clearly impacted real domestic growth and also support potential growth.