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

1
Faculty of Economics, Chiang Mai University, Chiang Mai 50200, Thailand
2
Center of Excellence in Econometrics, Faculty of Economics, Chiang Mai 50200, Thailand
3
Faculty of Agriculture, Chiang Mai University, Chiang Mai 50200, Thailand
*
Author to whom correspondence should be addressed.
Economies 2020, 8(1), 9; https://doi.org/10.3390/economies8010009
Received: 30 June 2019 / Revised: 5 January 2020 / Accepted: 21 January 2020 / Published: 30 January 2020
(This article belongs to the Special Issue Computational Macroeconomics)
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. View Full-Text
Keywords: Thailand-Japan trade; gravity model; copula; Markov switching Thailand-Japan trade; gravity model; copula; Markov switching
MDPI and ACS Style

Pastpipatkul, P.; Boonyakunakorn, P.; Phetsakda, K. The Impact of Thailand’s Openness on Bilateral Trade between Thailand and Japan: Copula-Based Markov Switching Seemingly Unrelated Regression Model. Economies 2020, 8, 9.

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