The effects of international trade on human development: a comparative analysis of the Association of Southeast Asian Nations (ASEAN) and the Southern African Development Community (SADC)

Abstract

This study analysed the effects of international trade on human development in two developing regions, the Association of Southeast Asian Nations (ASEAN) and the Southern African Development Community (SADC). The choice of comparing SADC and ASEAN is motivated by the many similarities between both regions half a century ago, and the stark divergence of their respective development pathways which has led to different development outcomes half a century later. Annual data from 2000 to 2018 and dynamic panel data econometric techniques were used in this study, controlling for individual country characteristics, endogeneity, serial correlation, heterocedasticity and interdependencies between the countries in each region. Two estimations were done in this study; sample wide estimations and country specific estimations. In the sample wide estimations the Generalised Method of Moments of Arellano and Bover (1995) with forward orthogonal deviations, and Feasible Generalised Least Squares of Parks (1967) and Kmenta (1986) were used, whilst Swamy’s Random Coefficients were used in the country specific estimations. Trade is measured using the current account balance as a percentage of GDP, whilst human development is captured by the United Nations’ Human Development Index (HDI). In the sample wide estimations, the study found that trade openness enhances human development for both SADC and ASEAN as measured by the Human Development Index (HDI). Gross fixed capital formation, economic growth and technological progress all had positive effects on human development in both regions. Unemployment had a counter intuitive positive effect on human development. This raises issues on the nature and quality of employment, including concerns on cheap production labour and vulnerable employment. The ASEAN region had a higher mean level of economic growth, a trade surplus and higher level of technological progress than SADC. This is consistent with the manufacturing focus of ASEAN, compared to the primary commodity exporting nature of SADC which had a trade deficit. However, in each region there were country specific differences in terms of what drives human development. The country specific disparities in drivers of human development have implications for the regional trade and development nexus. In particular, these disparities must be considered in the conceptualization and implementation of the SADC Industrialisation and Strategy Roadmap, and the most recent African Continental Free Trade Area. The policy implication is that such regional trade agreements should accommodate countries’ specific heterogeneity as the policy pathways will differ between countries.