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Do Japanese Foreign Direct Investment and Trade Stimulate Agricultural Growth in East Asia? Panel Cointegration Analysis

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  • Sattapon, Weerapong

Abstract

The agricultural sector is an important sector that most people in East Asia rely on and growth in this sector may help to lift their standard of living. This study assessed what factors contributed to agricultural growth by applying the panel econometric approach. First, the long-run relationship between the agriculture growth and its explanatory variable was investigated by applying the IPS unit root test and Pedroni panel cointegration test. The results indicated that all variables showed an integration of order unity, and showed strong evidence to support the existence of long-run relationship. The results from Fixed Effect (FE) regression indicated that imports, exports and trade liberalization were the important factors that contributed to growth in China, Malaysia, Indonesia, Philippines, and Thailand. Thus, promoting trade policy in these countries would stimulate the agricultural growth. In contrast, only imports and trade liberalization were important factors contributing to growth in Korea and Taiwan. The study also found that Japanese FDI significantly helped to stimulate the growth, but the evidence was weak in the case of Korea and Taiwan. The finding of this study will help policy makers to understand the likely implications of possible future policies. The agricultural sectors of countries cannot rely solely on internal factors such as land and labor to promote agricultural growth. Agricultural growth requires more trade liberalization, especially when imports are an important factor for promoting growth. Attempting to lower imports would lead to retarded growth. Meanwhile, appropriate policies to attract Japanese FDI into the agricultural sector are also important in order to help accelerate growth in this sector.

Suggested Citation

  • Sattapon, Weerapong, 2006. "Do Japanese Foreign Direct Investment and Trade Stimulate Agricultural Growth in East Asia? Panel Cointegration Analysis," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25570, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae06:25570
    DOI: 10.22004/ag.econ.25570
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