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, 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. Indonesian results of the level and volatility of net barter and income terms of trade have no effect on economic growth, with some exception of a moderated effect from income terms of trade on growth. Philippines' both terms of trade and its volatility leads to an obstacle and a stimulation to real domestic growth, respectively. Thailand's results show that an improvement in four types of terms of trade can enhance real GDP per capita