DOES INCREASED PER CAPITA TRADE LEAD TO HUMAN DEVELOPMENT? - A STUDY OF THE ASEAN COUNTRIES, CHINA, JAPAN AND KOREA (ASEAN PLUS THREE)

Abstract

The linkage between trade and development is complex. Different measure of development yields different relationship between trade and development. Moreover, the impact of trade on development is usually tested through the intermediaries of economic performance and changes in income.

This paper examines the direct relationship between human development and per capita trade. The hypothesis is that the increase in per capita trade is positively correlated with the enhancement of human development, measured by the UNDP Human Development Index. This paper uses panel data covering the ASEAN Plus Three countries from 1990 to 2011, and adopts Ordinary Least Squares (OLS) model with country and year controls for quantitative analysis.

The results confirmed the positive relationship between trade and human development. In this case of Southeast and East Asian countries, export has a greater impact than import on human development, possibly due to the success of the export oriented economic growth strategy across the region. More importantly, multilateral trade agreement and trade openness also have a positive impact on the livelihood of people, for both higher income countries and lower income countries. Major economic downturns like the 2008 financial crisis have a very significant negative impact on trade and development in countries across the region. These findings suggest that countries should continue their export oriented economic growth strategy and promote per capita trade volume with multilateral engagement and further trade openness.