Testing for long-run purchasing power parity of Asean4-Singapore through the impact of cept scheme and global financial crisis / Abdul Rahim Ridzuan and Maizatul Saadiah Mohamad

This paper examines the validity of purchasing power parity (PPP) hypothesis for four founding members of the Association of Southeast Asian Nations (ASEAN4) with Singapore as base currency. A range of standard unit root tests and cointegration used in previous studies applied to test long run PPP a...

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Main Authors: Ridzuan, Abdul Rahim, Mohamad, Maizatul Saadiah
Format: Research Reports
Language:English
Published: Research Management Institute (RMI) 2011
Subjects:
Online Access:http://ir.uitm.edu.my/id/eprint/23229/
http://ir.uitm.edu.my/id/eprint/23229/1/LP_ABDUL%20RAHIM%20RIDZUAN%20RMI%2011_5.pdf
id uitm-23229
recordtype eprints
spelling uitm-232292019-02-22T03:21:04Z http://ir.uitm.edu.my/id/eprint/23229/ Testing for long-run purchasing power parity of Asean4-Singapore through the impact of cept scheme and global financial crisis / Abdul Rahim Ridzuan and Maizatul Saadiah Mohamad Ridzuan, Abdul Rahim Mohamad, Maizatul Saadiah Management. Industrial Management Labor. Work. Working class This paper examines the validity of purchasing power parity (PPP) hypothesis for four founding members of the Association of Southeast Asian Nations (ASEAN4) with Singapore as base currency. A range of standard unit root tests and cointegration used in previous studies applied to test long run PPP and four models are introduced based on the implementation of Common Effective Preferential Trade (CEPT) scheme and the impact of global financial crisis. The result from the unit root test showed that all the data are stationary at I (1). Therefore, the data fulfill the requirement to proceed with the Johansen Juselius cointegration test. There is no evidence of PPP detected between ASEAN4 and Singapore before the implementation of CEPT scheme in model 1. This may due to the existence of tariff and non-tariff barriers of the good and services among the ASEAN4 and Singapore that leads to a failure of PPP theory. However, the evidence of long-run PPP is detected between Malaysia-Singapore, Thailand-Singapore and Philippines- Singapore after the implementation of CEPT scheme for model 2 and before the global financial crisis hits in U.S economy. Among these three countries, the strongest presence of PPP is found between Malaysia and Singapore where it carried both correctly signed and statistically significant variables. While the evidence of PPP for Thailand and the Philippines seems weaker due to it's contradict expected sign. In Model 3, the existence of PPP is strongly detected for Malaysia-Singapore, white weakly detected for Philippines-Singapore during the global financial crisis. The strong evidence of PPP at this period suggest that the Malaysia' economy is still strong enough to cushion the effect of this recession due to its diversification economic policy. In Model 4, we fail to detect any evidence of PPP for ASEAN4- Singapore. This prove that the ASEAN4-Singapore countries still in the progress of recovery after global recession which lead to the failure of PPP. Field of research: International Economics Research Management Institute (RMI) 2011 Research Reports NonPeerReviewed text en http://ir.uitm.edu.my/id/eprint/23229/1/LP_ABDUL%20RAHIM%20RIDZUAN%20RMI%2011_5.pdf Ridzuan, Abdul Rahim and Mohamad, Maizatul Saadiah (2011) Testing for long-run purchasing power parity of Asean4-Singapore through the impact of cept scheme and global financial crisis / Abdul Rahim Ridzuan and Maizatul Saadiah Mohamad. [Research Reports] (Unpublished)
repository_type Digital Repository
institution_category Local University
institution Universiti Teknologi MARA
building UiTM Institutional Repository
collection Online Access
language English
topic Management. Industrial Management
Labor. Work. Working class
spellingShingle Management. Industrial Management
Labor. Work. Working class
Ridzuan, Abdul Rahim
Mohamad, Maizatul Saadiah
Testing for long-run purchasing power parity of Asean4-Singapore through the impact of cept scheme and global financial crisis / Abdul Rahim Ridzuan and Maizatul Saadiah Mohamad
description This paper examines the validity of purchasing power parity (PPP) hypothesis for four founding members of the Association of Southeast Asian Nations (ASEAN4) with Singapore as base currency. A range of standard unit root tests and cointegration used in previous studies applied to test long run PPP and four models are introduced based on the implementation of Common Effective Preferential Trade (CEPT) scheme and the impact of global financial crisis. The result from the unit root test showed that all the data are stationary at I (1). Therefore, the data fulfill the requirement to proceed with the Johansen Juselius cointegration test. There is no evidence of PPP detected between ASEAN4 and Singapore before the implementation of CEPT scheme in model 1. This may due to the existence of tariff and non-tariff barriers of the good and services among the ASEAN4 and Singapore that leads to a failure of PPP theory. However, the evidence of long-run PPP is detected between Malaysia-Singapore, Thailand-Singapore and Philippines- Singapore after the implementation of CEPT scheme for model 2 and before the global financial crisis hits in U.S economy. Among these three countries, the strongest presence of PPP is found between Malaysia and Singapore where it carried both correctly signed and statistically significant variables. While the evidence of PPP for Thailand and the Philippines seems weaker due to it's contradict expected sign. In Model 3, the existence of PPP is strongly detected for Malaysia-Singapore, white weakly detected for Philippines-Singapore during the global financial crisis. The strong evidence of PPP at this period suggest that the Malaysia' economy is still strong enough to cushion the effect of this recession due to its diversification economic policy. In Model 4, we fail to detect any evidence of PPP for ASEAN4- Singapore. This prove that the ASEAN4-Singapore countries still in the progress of recovery after global recession which lead to the failure of PPP. Field of research: International Economics
format Research Reports
author Ridzuan, Abdul Rahim
Mohamad, Maizatul Saadiah
author_facet Ridzuan, Abdul Rahim
Mohamad, Maizatul Saadiah
author_sort Ridzuan, Abdul Rahim
title Testing for long-run purchasing power parity of Asean4-Singapore through the impact of cept scheme and global financial crisis / Abdul Rahim Ridzuan and Maizatul Saadiah Mohamad
title_short Testing for long-run purchasing power parity of Asean4-Singapore through the impact of cept scheme and global financial crisis / Abdul Rahim Ridzuan and Maizatul Saadiah Mohamad
title_full Testing for long-run purchasing power parity of Asean4-Singapore through the impact of cept scheme and global financial crisis / Abdul Rahim Ridzuan and Maizatul Saadiah Mohamad
title_fullStr Testing for long-run purchasing power parity of Asean4-Singapore through the impact of cept scheme and global financial crisis / Abdul Rahim Ridzuan and Maizatul Saadiah Mohamad
title_full_unstemmed Testing for long-run purchasing power parity of Asean4-Singapore through the impact of cept scheme and global financial crisis / Abdul Rahim Ridzuan and Maizatul Saadiah Mohamad
title_sort testing for long-run purchasing power parity of asean4-singapore through the impact of cept scheme and global financial crisis / abdul rahim ridzuan and maizatul saadiah mohamad
publisher Research Management Institute (RMI)
publishDate 2011
url http://ir.uitm.edu.my/id/eprint/23229/
http://ir.uitm.edu.my/id/eprint/23229/1/LP_ABDUL%20RAHIM%20RIDZUAN%20RMI%2011_5.pdf
first_indexed 2023-09-18T23:10:20Z
last_indexed 2023-09-18T23:10:20Z
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