THE ROLE OF GLOBALIZATION OF GROSS DOMESTIC PRODUCT CONSTRUCTION IN ASEAN

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EcoNoMrcJor.lRNAL oFEUERGING MNRKETS

Accredited, SK No.: 65alDIKTI/Kep / 2OOA

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Muhammad Sri Wahyudi Su/lswanfo and David Kaluge

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Aurora lndra Puti

EMPLOYMENT EFFECT OF INDONESIA'SNON.OIL EXPORT

Nur Feiyanto

I Votume 2 lssue 2, August 2010 | eages: f e-ZZl I

ECoNoTTcJOURNAL or EUrxCwG MARKrrs August 2O1O 2(2) 1,57-1.7O

THE ROLE OF GLOBALTZATION ON GRSSS DO]UIESTIC

PRODUCT CONSTRUCTION IN ASEAN

Muhammad Sri WahYudi SuliswantoFaculty of Economics, university of Muharnmadiyah Malang

e-mail: al. aYudie@gmail. com

David KalugeFaculty of Economics, University of Brawijaya Malang

. e-mail: [email protected]

Abstract

k research analyzes the role of globalization on Cross Domestic Product tCDn in ASEA}'{-5 by

ar*rnating panel data. It uses a tixid effect approach to accommodate various characteristics in the

crmrfies. To accommodate such variation, if issumes that the interceptions ale varies across these

cnmtries, while the slopes are similar. Based on the estimation result, it suggests that net export

d foreign direct investrnent represent the globalization process. Both have positive and siguifi-

s-rt influenc es on GDP in the corresponding countries'

Erywords: Globalization, intemational trade, foreign direct investment, gross domestic product

.Uf,[. classification numbers: E01, F5 1 , F43

to govelnment, importing which means

purchasing goods (commodity) produced

by other countries, and saving the rest ofincome in a financial institution.

The things which can be started mo-

tor of the econornic growth in the context

of an open eccnomy is intemational trade.

ln this case, an open economy is about ex-

port, import, and foreign capital flow in-

take. Basri and Haris (2010) explained that

openness will enable economy for intema-

tional tradiag, export, and import of com-

modity and services. There by national in-come of an open economy, the role of ex-

port and import become an important thingrelated to economic growth enhancement.

Most of countries in the world make

export and import activities of commodity

and services also production factors to ful-fill the necessaries of life in their own

countries. Interdependence among coun-

tries in the world has been growing for

decades as shown by the fact that worldtrade has been growing faster from the

world production (output). Based on Inter-

FiTRODUCTION

Ore of main indicators in economic devel-

ryent is economic growth- Therefore,

clcro economic polibs of a country must

he led up to optimize economic growth.

funomic growth depicts the progress ofmoaomic activities in a certain year Su-

kfuo (2006). Economic growth gets bear-

ng with production ascension a state or

tpcme ascension per-capita a state' There-

frre, economic growth hands in glove bear-

img it with gross domestic productGDn.In an open economy, economic sec-

m is distinguished into four categories;

corporate, household, government, and

on"erseas. The use of production factors bycorporations will give an income current to

tfue household sector in salaries and wages,

rem! interest, and profit. Household and

economy will utilize their income for trans-

mtions, such as purchasing goods (com-

mdity) and services produced by corporate

eector and revenue expenditure for goods

aund services consumption produced inside

lof a country itself;, paying tax on income

tf

158 Econol,uc Joux.NAt or Eurncuvc Mep.xrrs August 2OIO 2(2) 757-t7A

national Trade Statistics 2009, the rate ofGDP growth in the world was only 3,33yowhereas export growth of commodity in theworld was 60/o.

Intemational trade has to play a partof strategy in processes of economy devel-opment. Trade role in development can beseen from its contribution in growth econ-omy stability and development and pickinggeneralization. Technically, comrnerce en-ables its amends of new technological in-novations, so it expands production andconsumption option. One of influences ismarked sense of foreign exchange produc-tion. Foreign exchange resorve constitutesin one of monetary indicator that momen-tously point out its frail strength econornicof a state.

In addition, it is not only about in-temational trade in the globalization proc-ess but also clearing away in productionsector supported by deliberate of capitalinflow or outflow. The ways to extendmarket and find an inexpensive location formaking production are like a current whichcannot be hampered industry relocation.The location movement will be related toforeign direct investment happened in animporter country.

Foreign Direct lnvestment (FDI) isconsidered as more effective ways to en-courage economic growth in a country. Di-rect Investment is a kind of investmentwhich involves investors directly in an op-erational exertion, so the exertion dynamicsrelated to the policy of company deter-mined objective which is going to be at-tained are not apart from foreign investor.By using FDI, foreign capital can give bet-ter contribution into development process.

To build an economics has to havesocial overhead capital which is giant pro-ject required just for smooth businesses andcommerce as highway, train rail, irrigationand weir project, and common health me-dium. A11 these require investment thatgreatly tends to get character at a swoop.There is no one or little firm that can build

a highway system. No firm which can hopeto get profit if needful fund can't be pro-vided by govemment. Here, investrnentproject benefit scale outgrows to the wholethat come from abroad which can scatter toall economics.

Sukirno (2006) explained that directinvestment will increase job opportunityand alleviate unempioyment which gov-ernment has. The ability of foreign compa-nies in using higher technology will causetheir productivity getting higher as weIl.

External factor on current worldeconomics points out eontribution that isprogressively significant to economics indeveloping a state. It relates with.getting itsopen-ended economics universalize as wellas to world econcmic as a whole economicarea.

The world economy has beenchanging sicce 197Ss to 2000s, which vari-ous basic or strucfural characteristic andlong term inclination. The progress hasbeen characterized by a globalization.

According to Apridar (2007), glob-alizatian is a term which characglenzed byrelevant enhancement and dependenceamong nations and people in the worldthrough frading, investment, joumey, popu-larity, culture, and other kinds of interac-tion. This has made the boundaries in acountry become biased.

In many cases, globalization has alot of similar characteristics with intema-tionalization, and this tenn is often ex-changed each other. Some parties often usethe term of globalization which is related tothe shrinkage of countr5r's role or bounda-ries in the country.

In addition, Apridar (2007) alsomentions the economic globalization whichbecomes a process of economy and tradeactivities where countries over the worldbecome a market power. They are moreintegrated without restriction in territorialboundaries of a country. Economic global-ization. compels all boundaries and barriers

*Roteof Globalization ... (Suliswanto & Kaluge)

mid capital, commodity and servicesormt disbandment.

When economic globalization be-ffi a reality, boundaries in a countryti[ be vague. Economic globalization

ffifi intemational markets, which meansr ryortunity to wider range of exports.&uinver, it also opens opporhrnity forGhbel products to penetrate domestic mar-k

Friedman (in Halwani, 2005) saidh globalization is a neutral form whichlru impact life, depends on how we con-rik it. It can strengthen and weaken as

rem, it makes something as one and polar-ire as well; it can democratize,but it alsolckrrg.s to other way.

Globalization has been the mostfussed topic in the last two decades,metimes it was in enthusiasm in general,h snmetimes it was also followed closelyLt worry and disaffection. Globalization,dish is a comprehensive economic inte-gn*irm, will show its form to the ASEANffiies in ASEAN Economic Societies

OffiA). The development in intemational*r $forld War II can be explained thattke is lots of phenomenon on regional

"-r,momic agreement in the whole coun-:k; iato globalization.

According to reporting WTO, Theremre vicinig 2A0 available regional eco-nnic agreements in the wold which runr&ctively until year 2006, and some stillh in a deep negotiation level. Trade vol-re (intemational) which is involved in thergfumal economic agreement now exceedsth half of total global trade (Bank of Indo-refxe,2008).

These days, as the effect of global-mion era, economy in a country will beree integrated with other countries, in anmr or world in general. Economic integra-*ro theory was referred to a commercial

;dicy or trade policy discriminatively de-ming or missing the trade bariers outdy among countries which are compro-

mised each other to make integration onfinite economy.

The economy integration level itselfis highly varied, from preferential trade ar-rangement, which furthermore can beevolved become a forrnation of free tradearea, and then become customs office alli-ance, joint market, and at last it will lead inthe economy unification thoroughly.

Preferential Trade Arrangementswas formed by countries which were com-promised to decrease barriers of tradeamong them, and differentiate it with eve-rything put into effect toward foreign coun-tries which are not members for example isBritish Commonwealth Preference Schemewhich was fonned by British Kingdom. Itsaffiliation covers regions under its directoryand some of them are ex - colonial territo-ries.

Free Trade Area (FTA) is a form ofhigh economic integration where all barri-ers of tariff and non tariff trade amongmember countries had been omitted ufferly,however each member country deserves todecide whether they intend to maintain oromit the hade barriers implemented towardnon - member foreign countries. The ex-amples of such an FTA are European FreeTrade Association (EFTA) which was es-tablished by England, Austria, Denmark,Norway, Portugal, Sweden, and Swiss in1960, and. North American Free TradeAgreement (NAFTA) which was estab-lished by USA, Canada, and Mexico in1993.

Furthermore, customs union com-pels all member countries to omit not onlyall kinds of trade among them, but alsotreat their trade policy the same as normember foreign countries. For example,European Union or which was known asEuropean Common Market which was es-tablished in 1957 by West Germany,France, Italy, Belgium, Netherland andLuxemburg.

On the next stage, the economic in-tegration became a common market. With

159

160 Ecoruomc JoUB.NAL or E*runcruc Manxrrs August 2O1O 2(2) 157-77O

this economic integration, not only com-modity trade which are liberating, but alsocurrent of production factors such as laborand capital. On the highest levei of eco-nomic integration, that is economic union,harmonization was carried out further, evenby treating the mr:netary and fiscal policyof each mernber country the same. The ex-ample of this economic union is Benelux,which is economic union of Belgium,Netherland, and Luxemburg. In addition tothat, the example of comprehensive eco-nomic and monetary union is United Statesof America.

Theoretically. economic integrationpledges prosperity enhancement for thoseeountries included, such as opening largermarket access, encouragement in attainingefficiency and higher eccnomy competi-tiveness, included bigger manpower air-sorption.

One of the existing economic inte-gration is ASEAN. Lloyd and Smith {2004)had a notion that these globalization andregionalization process are general chal-lenge for ASEAN Economy and ASEANArea collectively. Based on ASEAN meet-ing on January 2007 h Cebu, Philippines(Bank of lndonesia, 2008), ASEAN chiefsagreed to accelerate an ambitious initiativeto integrate their economy and buildASEAN Economic Community in20l5.

Establishment of a fully integratedeconomy (club) can change economy out-put distribution of counkies engaged. Itmeans, in a composite of integrated econ-omy where the mobility of production fac-tor does not have any barrier and technol-ogy utilization for production needs can besaid of one kind, so that segment of totaloutput, total physical capital, and total hu-man capital in a country are predicted to beidentical.

Countries with small segment ofoutput will have small proportion of capitalstock (either physical or human capital) as

well. Sturdier economic integration ex-pected will result in intemational trade cur-

rent and Foreign Direct Investment (FDI)are getting free and increase. Thereby, it isexpected that intemational trade enhance-ment and FDi will be able to enhance na-tional income or Gross Domestic Bruto(GDh as the national income calculationin general. There are some researches toexamine relationship possibility among in-ternaiional trade, FDI, and economicgrowth rnhich are cL\rilmon.

Histcry of rvcrld economy gave aguideline that there i.q a close relationshipbetween export and economic growth.Therefore, man)/ er;onornists are convincedthat internationai irarle has important rolein the developmett p16lgsss in a counffy as

a rvhole. Ciassic *ccnomists believed thatdevelopment can he reached through whatwe called 'trade", as shown by experiencein a number of deleloped countries have.

Arlam Srnith emphasized on the im-poflance on intemational trade as event forsurplus and as a plane of life in extendingdomestic markets, so it can improve divi-sion of labor and heighten productivitylevel in general. Robefison (1938) intro-duced concept of engine of growth whichmeans high grou,th in a country as a centralwas brought into undeveloped areas sur-round through trades. After a quarter cen-tury later, Kindteberger (in Malik, 2010)introduced similar opinion: export-ledgrowth. Since that time, this topic becamemore interesting to come up for discussionin economic literature.

Emery (in Malik, 2010) who was apioner in econometric study estimated rela-tionship between export performance andeconomic growth. The result of study usingOLS method had a conclusion that therewas sturdy base that export is a main factorin enhancing the economic growth andtherefore it can be said that in general, ex-port enhancement can stimulate the eco-nomic growth, not otherwise. And so didother researchers, although they do nothave any conclusion like Emery had, whichshowed there was close relationship be-

Tb Role of Globalization '. . (Suliswanto & Kaluge) l6l

ttreerr export and economic growth. How-

ere., oooe of those studies examined the

direction and characteristics of the relation-

trip of both variables, therefore they did

ro{ completely support the hypothesis ofaport- led growth.

HesitancY on hYPothesis of exPort

rs a motor of development was supported

@ Michaely's research (in Malik, 2010),

rnd substantiated by Heller and Porter (in

MaUk, 2010), and Helleiner showed that

aport will give contribution to the eco-

smic growth if a country has attained a

scrtain develoPement.Makki and Somwaru (2001) com-

uitted research about FDI and trade effects

m the economic growth with 66 countries

s sample in 1960 - 2000 and used Seem-

irgly Unrelated Regression (SUR) method

poducing result that FDI and trade gave

*Emificant contribution toward economic

have significani impact toward economic

growth.Jawas (2008) committed research

about the impact of foreign investment and

export toward economic growth in Moslem

countries by using data panel model which

resulted foreign investment variables which

had negative impact but significant toward

economic grolvth in Moslem countries'

And then estimation result of export vari-

able had positive and siguificant impact

toward ecoacmic growth in the Moslem

countries in 2004 -. 2005.

Carceres {2009) arlalyzed about the

role cf foreign direct investment toward

economic growth in East Asia countries by

using approximation model of multiple lin-

.ut i*gi"ttion and effor coffection model

(ECMj which was resulted that foreign di-

rect capital which entered East Asian coun-

tries, had a positive relationship in general,

and sturdy toward economic growth GDnon the destination countries of FDI

Iqbal (2010) analyzed about causal-

ity relationship among FDI,ttade, and eco-

nomic growth in Pakistan by using causal-

ity and VE,CM approach, it was produced

results of FDI and exports are two essential

factors which added impacts from the eco-

nomic growh.based on the exPlanation above, it

was interesting to examine about the role ofglobalization w.hich was represented from

Ire influence of intemafional trade afi FDItoward the formation of GDP in ASEAN

countries. If there is significant influence,

policy in economic integration is necessary

ior supporting the enhancement of GDP

formation.

METHODS

This research is about the role of globaliza-

tion toward GDP formation in ASEAN

countries, the researcher committed empiri-

cal study with research samPles ofASEAN-5 (Indonesia, Malaysia, Singa-

pore, Thailand, and Philippine) in the year

of tgqO - 2009, and the data used were

growth in develoPing countries.Athukorala (2003) in his research

*out FDI effect toward the economic

growth with case study in Sri Lanka pro-

&"ed result that there was close relation-

&fo between, FDI and economic growth in

Sri l*anka.Empirical results fiom Krisharianto

ad Hartono (2007) about the relationship

[!oog economic growth, international

hde, and foreigu direct investment in In-

fuesia by using approximation method of

tr rger causality and VAR, which resulted

ftt relationship between export and eco-

mic growth was bi-directional causation

;hich are growth driven export and export

hd growth, among FDI, intemational trade

td economic growth was economic

;rowth, intemational trade caused or im-

#dFDI.Ahmed et a1., (2008) researched on

ft role of Export, FDI, and Import toward

fuelopment in Sub Saharan of African

Cmtries by using approximation method

d antoregressive distributed lag (ARDL),

ftdroni Estimation and granger causality

uhilsh was resulted that export and FDI

162

secoodary datas which were gotten fromWorld Development lndicators.

Independent variables examined inthis research are variable of internationaltrade which using value data of net expott,value of foreign direct investment as a rep-resentative of globalization process, how-ever the researchers also used variable ofgovenrment expenditure and householdconsumption as controliing variable in themodel. The dependent variable is gross

domestic product.The following are definition of op-

erational variables used: Gross DomesticProduct is the amount of final commodityand service value produced by country'sfactors itself and foreigners live in thecountry; net export is from the whole ex-port value in any sectors after being allevi-ated by import in the economy of a country,in other words, net export is the real exportvalue which stated in million of USD; For-eign Direct Investment is a whole ForeignDirect Investment invested intake intoASEAN-5; Government Expenditure is allkinds of govemment expendifure involveroutine expendifure and development ex-penditure; and household consumption isan expenditure value or expendifure whichis committed by households to buy allkinds of daily needs in a certain year.

The exertion to answer questionsabout problem forrrula of this research, re-searchers used Data Panel method. Thismethod combined cross sector observationand (stretches of) time, so the amount ofobservation was getting increased. Estima-tion of data panel will enhance degree offreedom, alleviate co linearity among vari-ables (in getting clear) and reform estima-tion efficiency.

To be able to formulate empiricalmodel, GDP for the next year (lA) is thefunction of household consumption, FDI,govemment expendifure, and net export atpresent. So, GDPin the next year is formu-lated on this following equation:

EcoNotutc J oURNAI oI EMEXGTNG MmrrrS August 2O 1 0 2 (2) 1 5 7 - 1 7 O

Yi = Fo * FrX* * FzXzit * FeXsit*fi*X+it * €t. (l)

By using partial adjustment model(PAM) to formulate la, because therc isone period of lag, so the equity is written as

follows:

Y* -Y*_t - l(Y$ * Y;t_r)"

Yir=7(Y$*Yit-r) *Yrt*t

Y*=AYi+(1 *7)Y*-,

(2)

(3)

(4)

where ,1" is an adjustment value which hasvalue from 0 < ), < 1. By substituting theequity (1) into equity (4), the equation tumsinto:

Yit = l{Fa * FtXut * FzXzt * B3X3is *qrx*ir* eit) + (1- l)Yit- 1 (5)

Yit = 70o + ApLXTit + l$zxzit +)'BsXsft + 1p4x4ft * \ei, + (1 -^)Yit

- 1 (6)

If ao = TFoi qt = l|i a2 = 7$2; u3 =TBzi a+ = 7F+; us = (1- 7) ond lett =vtt&quity (6) is the GDP empirical equa-tion and by using regression model in theform of 1og, it can be written as follows:

lnYis - ils * d,ylnX1;s * a2lnX2is *a3lnX3i; * aalnXaig *a5lnYis-1* vis Q)

where, I/: gross domestic product; X1 :household consumption; Xz: foreign directinvestment; Xt : govemment expendihre;&: net export; r: count4/; and r: periodof time.

There are two basic approachesused to analyze the panel data. First, FixedEffect approach, which is a technique usedto estimate panel data by using dummyvariable to seize the difference of intercept.

TIp Role of Globalization ... (Suliswanto & Kaluge)

Secondly, Random Effect approach, whichfo panel data estimation where the residual

fu related to each other (time and individ-uat). Before the model is estimated by us-

i*g the proper model, it is necessary to give

ryecifrcation test, whether Fixed Effect orRaadom Effect or both which is going togive the same result. The option between

Fixed Effect and Random Effect is going to

be determined by using Hausman's test

(Widarjono,20A5).The stipulation of Hausman's test is

if the statistical value of Hausman is biggerthan its critical value, the proper model is

Fixed Effect model, on the contrary, if the

shtistic value of Hausman is smaller than

ig critical value, the proper model is going

to be Random Effect.The siguificance test in this research

sil{i committed partially and simultane-ously. Partially, it was committed t test, and

sinaultaneously it was committed Ftost.The f test is used to know whether

each dependent variable has significant in-ftuence partially toward independent vari-able. If f stat test > / table or -f stat < -t ta-ble, the result is going to be significant and

it means that Ho is refused and Hr is ac-

epted. Whereas, if r stat < / table or -f stat> -f table, the result is not going to be sig-nificant and it means that Ho is accpeted

aod FI is refused.F test or model testing is used to

kaow whether the result of the analysis isping to be significant or not, on the otherwords, the inferred model is going to be

proper or not. If the result is significarrt, Hs

is going to be refused and 1{ is accepted. Ifthe result is not significant, H6 is accepted

md Hr is refused. It can be said as follows:f{ is refused if F stat > F table;.F/0 is ac-

ce.pted if Fstat < Ftable.

BBSULTS DISCUSSION

The forrnation of ASEAN was based on the

consideration that South East Asian coun-tries had main responsibility to strengthen

the stability of economy and social in the

area and warrant the reconciliation and na-tional development progression of each

member. In addition to that, it was bent onwaranting the stability and safety to face

the intervention from outside in any kind ormaintaining the national personality ofmember country according to the people'sideas and aspiration.

In outline, the cooPeration ofASEAN are trade expansion, product ex-

change, and project allocation. The mainproportion is introducing the economy con-dition and enhancing national economicgrowth by using superiority on grand scale

of production and superiority because ofthe geographycal difference, so it can giveraw material, skill, and other different re-

sources,On the economic sector, it was

agreed that cocperaticn on economy is nec-

essary to be prioritized into other consoli-dations intake, because economic sector isthe weakest pait reiated to the condition ofeach ASEAN country. On the economic

sector, it was agreed to perform coopera-

tion on commodities, especially food and

energy, cooperation on trade sector, collec-tive approach toward other economic prob-lems and also apparafus in economic sec-

tors.As one unity of area, ASEAN

promised big potential of economy. Based

on the Inforrnation of Bank of lndonesia(2008), total amount of population reached

567,6 million people (compared to Euro-pean Union which rising 500 million ofpeople), and total GDP reached USD 1,1

trillion, ASEAN passed word on big poten-

tial of market. The economic growth ofASEAN-S (Indonesia, Malaysia, Singa-pore, Thailand, and Philippine) can be

shown on Figure 1.

In general, the fluctuation of eco-

nomic growth in ASEAN-5 in the year of1990-20A9 was relatively the constant. In1998, a1l ASEAN-5 experienced decreasingeconomic growth because in that year

Asian countries got crisis which came from

r63

164 Ecolrourc JouRNAr or EiumcrNc Maxxrrs August 2O1O 2(2) 157-i7a

the fall of Thailand Baht, and followed byPhilippine Peso, Malaysian Ringgit, Indo-nesian Rupiah, and even Singapore Dollar.And it was influenced on the economicgrowth in those countries, from those coun-tries, lndonesia had the biggest descentwhich decreased 13.13%, Thailandl0.5loh, Malaysia 7.36CIA, and Singaporewas only 1.38%.

In the year of 2008 and 2009, theASEAN-5 also experienced the decreasingeconomic growth. It was an influence ofmonetary crisis in USA which came fromthe case of failed in payment of KpR(Credit of House Proprietary) or known asthe term of Subprime Mortgage. N{onetarycrisis in USA, number one performer ofworld economy today, has influence onmany sectors and involves many countriesincluded lndonesia.

The flaming of global monetarymarket because of the continuation efl'ect

of subprime mortgage crisis caused globalinvestors made re-estimation toward its rn-vestment risk profile. Fund withdrawingfrom the investment of financial market indeveloping countries considered as thefully isk one was getting higher, so itcaused oppression toward currencies inrnost developing countries.

In addition to rhat, the fund with-drawing oi global investors was an exertionto cover the ioss fuom the investment in t-r-nancial market of advanced country whichwas getting fali incisively. So it also hadinfiuence on economic grorvth in a country.However, the influence toward the eco-nornic growth in Indonesia was not exceed-ingly in serious condition as happened in1998. Several depictions which showedthat in this globaliz.,ation era, the conditionof other countries will give influence toother countries because there is economicrciarionship among countries.

Source: World Development Indicatori, 20i0.

1993''1994 1995: 1996 2n92 IO03 tfiO4 2005 1006 .3@r', ,ZOSS

..tJ.03

I

-r:.aa -i

-a* ?i_in.icne5,i -ii:.' p--frl6la!:iE + ai-:ingEl);r> -*- pi_-l-lrailari .*!-.. pl_?hilipina

Figure 1: Economic Growth in ASEAN-S

b Rate of Globaiization ... (Suliswanto & Kaluge)

In addition to that, total segment ofHe toward GDP of each ASEAN-S was*E high, which showed how active thisrcwffr in this international trade. How farftrole of foreign trade is can be seen from& natio of export plus import towardGDP. The export segment plus import inGDPof ASEAN-5 can be shown on FigureL

Based on Figure 2, it can be knowntlx tfue biggest segment of export and im-

1mt among the ASEAN-5 is Singaporeuih 330%, and then followed by MalaysialWa, Thailand 1220 , Philippine 84yo,

dlndonesia 51%.From the side of international capi

ld flow, the ASEAN-5 regions were also

srsidered as the interesting ones, as

fuunr from the FDIflow intake which was

:mded to increase from year to year. It alsofrwed the rate of potential of ASEAN-S

as production base. The condition of FDIinthe ASEAN-S can be seen in Table 1.

The measurement on the rate of in-fluence on each variable toward GDP (Y) inthe ASEAN-S, it was committed analysis ofpanel data by using Fixed Effect approach.This model was chosen because of charac-teristic in each country is obviously differ-ent, so it was assumed that intercept is dif-fer among the countries, whereas the slopeis going to be the same among the coun-tries. The act of determining this approachwas also committed with Hausman's test,with statistical value of Hausman is 226,9371; whereas the critical value of chi-squares with df : 5 on a : 5Yo, it was got-ten 11, 0705. According to the stipulationof Hausman's test, it was gotten that theproper model to the analysis was Fixed Ef-fect model than Random Effect. The modelof analysis result of each country can beinterpreted on Table 2.

165

lndonesia Malaysia Filipina Singapura

ffi lndonesia H Malaysia I Filipina *# Singapura r Thailand

Source: Swindi (2009).

Flgure 2: Segments of Export and knport in GDP of ASEAN-S

Thailand

166 Ecor{orvrrcJouRNAt Or En4rnch{c Manrrrs August 20to 2(2) r 57-170

Table 1: The Value of Foreign Direet Investment, Net Inflows (Bop, current US$) in 6eASEAN.5

Country 1990 - 1995 1996*2001 2A02-2007 2008 2$fi9Indonesia 2,135,166,667 206,138,649

Malaysia 4,173,324,152 3,435,862,241

Singapore 6,239,653,4A4 13,149,036,627

Thailand 1,968,tr62,637 4,G80,205,520

Philippine 934,833,333 1,451,333,333

3,603,963,956

4,799,449,346

19,943,667,559

7,211,069,037

1,735,333,333

9,318,453,650

7,375,907,993

1.0,911,744,559

8,570,1 17,257

1,544,000,000

4,877,369,179

1,609,310,000

L6,909,767,745

5,955,595,700

1,949,000,000Source: World Development Indicators, 201 0.

Tabl@: Formation Model of GDP in theASEAN -5

Country Estimation Result

Indonesia

Malaysia

Singapore

Thailand

Philippine

Ln Y: 1,7733 + 0,7171 Ln X + 0,0253 Ln0,1269 Ln Y,-1

LnY= 1,8190 +0,7171 LnXr+A,A253 LnX2+0,0902 Lnxr+0,0130 Lnxa+A,L269 Ln Y;1

Ln Y: 1,8230 +0,7171 LnXr+0,0253 LnX2+ 0,0g02 LnXr+ 0,0130 LnXa+0,1269 Ln Y61

Ln Y: 1,6715 + 0,717t Ln X1 + 0,0253 Ln Xr+0,0g02 Ln x, +0,0130 Ln xa+0,1269 Ln Y,-1

Ln Y: 1,5699 + 0,7171 Ln Xr+ 0,0253 Ln X2+ 0,0902 Ln X, + 0,0130 Ln Xa+0.1269 Ln Y,

Based on Table 2, it can be shownthat the constant value for Indonesia :1,7133 which means GDP (Ln I) in Indo-nesia is l,7l33Yo when consumption (LnX), FDI (Ln X2), Govemment Expenditure(Ln $) and the net export (Ln Xi equalzero. The constant value for Malaysia is1,8190 which means GDP (Ln I) in Malay-sia is 1,8190% when consumption (Ln X),FDI (Ln {), Govemment Expendifire (Ln&) and the net export (Ln Xc) equal zero.The constant value for Singapore is 1,8230which means GDP (Ln I) in Singapore is1,8230oA when consumption (Ln X), FDI(Ln Xz), Govenrment Expenditure (Ln g)and the net export (Ln &) equal zero.

The constant value for Thailand is1,6715 which means GDP (Ln I) in Thai-land is l,67l5yo when consumption (LnX), FDI (Ln Xz), Government Expenditure(Ln fi) and the net export (Ln &) equalzero. The constant value for Philippine is1,5699 which means GDP (Ln l) in philp-

pine is 1,56990/0 when consumption (LnX), FDI (Ln X2), Government Expenditure(Ln fi) and the net exporr (Ln &) equalzeto.

The difference of constant value ofeach country indicates that there is differ-ence on input factors of each country. Outfrom labor and capital, there was a factorwhich is known as Total Factor Productiv-iry QFn which influenced the economicgrowth. In other words, total TFP ex-plained the role of another factor out fromlabor and capital. Concept of TFP is theinfluence of technological progress such astechnological mastery of production, edu-cation level and labor skill, ability in tech-nological mastery and the like toward eco-nomic growth.

As supporting data of those differ-eoces, here is the rank of technologicalmastery in companies and the rank ofglobal competitiveness index in eachASEAN-s.

The Role of Globalizatiott ... (Sulisrvanto & Kaluge)

itiveness Index in the ASEAN-5The Rank ofTechno- Global Competitiveness Index

Country Constant logical Utilizing inRank Value

t67

The Rank of Technological Mastery in Companies and The Rank of Global

lndonesia

Malaysia

Singapore

Thailand

t.71331.8190

1.8230

t.67151.5699

65

30

l566

59

44

26aJ

38

85

4.43

5.48

4.88

4.5t3.96

ffiitivenessReport2afi.20l1,WorldEconomicForum.

Based on Table 3, it can be shown-

ftat Singapore has the highest coefficientrralue of constant in the point of 1,8230 inthe formation of GDP according to the

height of rank in technological utilizing Tcompanies in Singapore, which is in the 15*

rank that is the highest rank of ASEAN-5.Malaysia take the second place and the coef-

ficient value of constant was 1,8190 which

was accord with the height of the rank oftechnological utilizing in the companies inMalaysia which took 30'n place which

means took the second place among those

ASEAN-s.Whereas, the coefficient value of

constant in the formation of GDP for [ndo-

aesia, Thailand, and Philippine succes-

sively are 1.7133,1.6715, and 1,5699 withthe rank of technological utilizing are 65,

6,6, and 59. Although based on the rank oftechnological utilizing Phillpine is betterthan lndonesia and Thailand, however its

rank of global competitiveness index was

sti1l lower than Indonesia and Thailandwhich took 85th place.

The main variables discussed in this

research are the variables which are a rep-

resentative of globalization, and they are

ret export variable and FDI variable- The

value of a+ is variable regression coeffi-

cient of net export in a short term (Ln Xa)

for all ASEAN-5 which is in the number of0,0130, it means that there is positive influ-mce between net export toward GDPinthemrmber of 0,0130%. If the net export (In

)Q) increased loio, CDP (Ln Y) will also

decrease in the percentage of 0.0130%. On

the contrary, if net export 1tn X+) decreased

at the percentage of lolo, GDP (Ln Y) willalso decrease in the percentage of 0,0130%.

Whereas, the value of az which isvariable regression coefficient of FDI inshort term 1tn Xu) for all ASEAN-5 in the

number of 0.0253, it means there is signifi-cant in{luence between FDItowatd GDPinthe percentage of 0,0253oA.If FDI (Ln Xz)

increases 1%, GDP (Ln Y) will also in-crease in the percentage of 0.0253%. On

the contrary if FDI (Ln Xz) decreases 10lo,

GDP (Ln $ will also decrease in the per-

centage of 0.0253%.Whereas, for long term coefficient

by using the formula of independent vari-able coefficient/( I -lag variable coefficient)which was gotten 0,0149 for net export and

0,0290 for FDI. Based on the calculationresult of long term coefficient from PAMabove, it could be explained that in the long

term, if net export increases 1%, it wiltcause GDP increasing in the percentage ofO,Al{goh. And if there is descent of net ex-

port lo/o, it will cause GDP decreasing inthe percentage of 0,0149%o.

Whereas, for FDI variable increased

l% wlll cause GDP inqeasing in the per-

centage of 0,0290Yo, and if FDl decreased

loh, it would cause GDP decreasing in the

percentage of 0,0290%o. On how those vari-ables had an effect on GDPinthe ASEAN-5 can be seen in this following table:

168 EcoNourcJouRNAr or f,urncwc M*xrrs August zoto 2(2) I57_til

Tablefl: The Influence of Each Variable on GDp in the ASEAN-S

Variable Short TerrnCoefficient

Long TermCoefficient Probability

Consumption

Foreign Direct Investment (FDI)

Government

Net Ekspor

Gross Domestic Product .-1

fr :99.28%

F-stat :468732.5

0.7t77*

0.0253*

0.0802**

0.0130*

0.1269*

0.8213

0.0290

0.0919

0.0149

0.0000

0.0044

0.1728

0.0790

0.0152

Notes: Entries in * and ** are significant at SYo and20%, respectivd.

From the result of panel data re-gression can be concluded that partially, netexport Q() and FDI (Xr) which were indi-cators of globalization proeess had positiveand significance influence at a 5%o towarddependent variable (GD\. Whereas, si-multaneously, F stat value was in the num-ber of 468732,5..F table (u : 0.05; regres-sion db : 5: residual db : 15) was 2,90.

468732,5>2,90, the analysis of regressionwas significance. So, simultaneously, theinfluence of all variables to GDP (I) wasbig.

The next step was to see the coeffi-cient value of determination which wasused to find out the contribution of inde-pendent variable toward dependent vari-able. Deterrnination coefficient (F) andalso adjusted determination showed thatvariable (of clarifying) in explaining thevariation of dependent variable. If rf vaheis getting closer to 1, it can be clarified thatthe model is getting better with assumptionthere is no false regression.

The determination coefficient valueof .P was in the number of 0,9928 whichmeans 99,28o/o of GDPvariable will be ex-plained by independent variable, they wereconsumption, FDI, govemment expendi-ture, and net export. And the residue whichwas in the number 0,72Yo; GDP vaiablewould be explained by other variableswhich were not included in this research.

To know about the variable whichhad the biggest influence toward GDPamong the ASEAN-S during the researchyear of 1990 - 2009 caa be seen from theprobability value. Independent variable hadthe lowest probability value which showedthat the variable is a variable which hadbiggest influence toward dependent vari-ables.

Based on the calculation result andcan be seen in the table 4, by comparing theprobability value of each variable could beconcluded that the variable which has big-gest influence toward GDP is householdconsumption. Whereas, the second andfourth lowest are FDI and net export. Itmeans that globalizationprocess had stronginfluence toward the formation of GDP inthe ASEAN-S after household consump-tion.

Therebv, the globalization of econ-omy which is a process of economic andtrade activity, where countries over theworld become a market power which ismore integrated without barrier on territo-rial boundaries, a country will be able togive contribution in enhancing GDP of acounky.

CONCLUSION

Foreign direct investrnent (FDI) and netexport were proven to have significant in-fluence on the formation of gross domesticproduct in the ASEAN-5. FDI and net ex-

The Role of Globalization ... (Suliswanto & Kaluge)

port were also proven to have an importantrole after household consurnption in the

formation of GDP.It means that the global-

batron process had a strong role toward theformation of GDPinthe ASEAN-5.

The results of this research sup-ported Nurkse's research finding (inSalvatore, L997) which clarified that inter-national trade was proven to be an engine

of, growth for developing countries. Thisresult also supported Sukirno's opinion(2006) that foreign investment can givevaluable contribution toward economic de-

velopment.Thereby, there are two implications

caa be extended. First implication is thatFDf is an investment which can be feit di-rrct1y toward real sectors to have a signifi-cant influence toward the formation ofGDP, so the policy to enhance FDI rnflawtras necessary, both from the perspective ofhtemal and external factors. If FDlinflowis getting higher, GDPwill also increase.

The second implication is that thel'ariable of international trade should gethigher attention by government to enhance

GDP, because this variable, which was cre-

aed from the net export value, had signifi-cant influence toward GDP, and productionof export commodity and product competi-

tiveness must be enhanced in order to beable to compete in the global market. If thenet export value is getting higher, GDPwlllalso increase. One of the ways to enhancethe international trade is through the FreeTrade Area. Urata (2002) had a notion thatif a country does not participate actively ina utilizing Free Trade Area, the countrywill get disadvantage.

In addition to that, the economic in-tegration which was done by ASEAN wasone of the polibs which were able to en-

hance GDP amang those countries. This isdue to fact that the economic integrationwill cause trade of commodity and service,investment, and mobility of production fac-tors among the mernber countries. There-fore, international trade and FDI inflowwill also increase. Worth (1997) stated thattrade liberalizatian with Regional TradeAgreements (RTA) will be able to enhance

economic growth in those member coun-tries.

In the global level, economic liber-alization and trade made activities on thecorporate world and national economy intoglobal system. With the condition, lndone-sia must be abie to effectively combine theability of competing and cooperating.

t69

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