The Impact of Thailand’s Openness on Bilateral Trade between Thailand and Japan: Copula-Based Markov Switching Seemingly Unrelated Regression Model

Pathairat Pastpipatkul, Petchaluck Boonyakunakorn and Kanyaphon Phetsakda
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Pathairat Pastpipatkul: Faculty of Economics, Chiang Mai University, Chiang Mai 50200, Thailand
Petchaluck Boonyakunakorn: Faculty of Agriculture, Chiang Mai University, Chiang Mai 50200, Thailand
Kanyaphon Phetsakda: Faculty of Economics, Chiang Mai University, Chiang Mai 50200, Thailand

Economies, 2020, vol. 8, issue 1, 1-13

Abstract: The purpose of this paper is to analyze the impact of trade openness and the factors based on the gravity model on the bilateral trade flows between Thailand and Japan. The factors consist of GDP, distance, trade openness, and exchange rate. Bilateral trade is composed of two flows: Thailand’s export flow to Japan, and Thailand’s import flow from Japan. The specified gravity equations are estimated by Copula-based Markov switching seemingly unrelated regression approach. The best-fitting model is chosen based on the lowest Akaike information criterion (AIC) and Bayesian information criterion (BIC). The Normal and Student’s t distributions are for Thailand’s export equation and Thailand’s import equation, respectively. The Student’s t copula is applied for joint distribution. Analyzing the bilateral trade flow is separated into two situations, namely the high and the low growth markets. Empirical results show that distance provides a positive effect on the export in a high growth regime, but a negative impact on the export in a low growth regime. As for Thailand’s import flow, all variables, but especially trade openness, provide strong evidence supporting significance for both regimes. For the GDPs of both Thailand and Japan, trade openness and the exchange rate increase import flow in a high growth market. Meanwhile, the exchange rate decreases import flow in a low growth market. The Markov Switching Probability Estimation notes that Thailand’s trading with Japan is mostly in the fast-growing market.

Keywords: Thailand-Japan trade; gravity model; copula; Markov switching (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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