The various roles of international trade in stimulating economic growth have been in several studies even decades ago. The traditional trade theory projected that openness to trade solely brings gains from output and does not give any implications to economic progress. Nonetheless, the channel through which trade results in faster economic growth has not however been clear. Currently, the new endogenous growth model by Romer (1986) and Lucas (1988) has provided theoretical basis for the positive relationship between international trade and long-run economic growth and development.
Through the liberalization and globalization, a country’s economy has become related to factors like trade openness. International trade offers rise to competitiveness and to the opportunities of what international market can give. Trade influences a country’s growth rate by facilitating the transmission of technology across borders, but there are different barriers to consider in international trade. Among openness measures, trade volumes; ratio of exports plus imports to GDP is the most difficult measure, openness is outlined as removing or reducing policy barriers to international trade instead of trade intensity. Subsequently a country’s openness is not exclusively affected by trade policy but also by other factors such as country size, distance to trade partners, transportation costs, world demand etc.
Thus, International trade is one amongst the foremost factors of a county’s openness, that later can result in economic growth. Participating in economic integration results to reduction and/or elimination of trade barriers and stimulate trade among nations and regions.
Furthermore, the Association of South East Asian Nations was established on August 8, 1967 with five members namely Indonesia, Malaysia, Philippines, Singapore and Thailand, also known as the ASEAN-5. It promotes intergovernmental cooperation and facilitates economic integration among its ten Southeast Asian member countries to accelerate the economic growth, social progress and cultural development within the region. Since the establishment of ASEAN (Association of the Southeast Asian Nation) there are many economic reforms and adaptation to an open policy, international trade and economy of ASEAN member countries has experienced growth. The ASEAN Free Trade Area (AFTA) is an agreement which has a primary goal increasing the ASEAN competitiveness as a production base in the world market.
The main objective of this paper is to see whether or not the trade openness of a country features a significant result to economic growth. Also, this study utilized empirical study that uses proxy variables for trade openness.