An Econometric Appraisal of Single Currency Model on Asian Countries

Abstract

This project paper investigates empirically the relationship between the Maastricht Convergence Criteria involves inflation rate, deficit per GDP, and debt per GDP, with the GDP per capita growth rate in seven Asian countries - Indonesia, Malaysia, The Philippines, Singapore, Thailand, Japan, and Korea - over the period 1970 to 2004. Recent development methods of multivariate cointegration analysis followed by vector error-correction modeling were undertaken. The empirical results of the analysis suggest that there is a long run relationship between the Maastricht Convergence Criteria and GDP per capita growth rate for each country. In addition, the results fiom long-run equilibrium estimates show that the Maastricht Convergence Criteria, especially deficit per GDP and debt per GDP have significant negative impact on economic growth in most of the Asian economies. These results are quite consistent with the work by Afientiou and Serletis (2000) in which indicated that the Maastricht Convergence Criteria should have an adverse effect in promoting economic growth. The most interesting finding from the results of Granger-causality test is the exogeneity of debt per GDP among the Maastricht Convergence Criteria. In most cases, debt per GDP is found to be exogenous. Therefore, these findings are consistent to the results of long-run equilibrium estimates in which support that deficit per GDP and debt per GDP, in particular, is the significant policy instruments to stimulate economic growth.