Dr. A. N. M. Waheeduzzaman Professor of Marketing and International Business

1. Do Globalization and Freedom Favor Trade in Emerging Markets? Dr. A. N. M. Waheeduzzaman Professor of Marketing and International Business Texas A&M University-Corpus Christi 2012 International Conference on Contemporary Business and Management Chulalongkorn University Bangkok, Thailand December 10-12, 2012

2. Self-Introduction • Educated in Bangladesh and USA • MBA in Marketing-IBA, Dhaka University, Bangladesh • MBA in International Business-George Washington University, Washington, D.C., USA • Ph.D.-Kent State University, Ohio, USA • Previous University Affiliations • Institute of Business Administration (IBA), Dhaka University • North South University, Dhaka • University of New Haven (Connecticut) • Salisbury University (Maryland) • International Competitiveness is my area of specialization  Still enjoy teaching and conducting research 

3. Presentation Outline • Why study emerging markets • Trade theories and the gravity model • Objectives of the study • Study Models: Regression and Factor Analysis • Methodology and data collection • Findings • Conclusion

4. Why Study Emerging Markets • Who are the emerging markets? • Naming of Emerging Markets • Antoine van Agtmael, an officer of the International Finance Corporation, is credited to have coined the term in 1981. • He wrote a bestseller The Emerging Markets Century in 2007 published by The Free Press. • Why study them • Growing proportionately faster than developed markets in terms of GDP, trade, investment, and production • Global investments, sovereign funds, and global growth funds implications • Has short and long term demographic, cultural and political implication

5. Emerging Markets: Listing And Selection

6. Top Seven Economies Based on GDP measured at PPP (in billions), 2009 US dollars Source: Waheeduzzaman, A. N. M., “Competitiveness and convergence in G7 and emerging markets,” Competitiveness Review, Volume 21 (2), 110-128.

7. Trade Theories • Classical trade theories: • Mercantilism, Adam Smith’s absolute advantage, Ricardo’s comparative advantage, and Heckscher-Ohlin’s factor endowment theory • Modern and newer explanations: • Raymond Vernon’s international product life cycle, Porter’s double diamond, country similarity theory, and the gravity model • In a way, the gravity model (or a revised gravity model) fit the purpose of this study

8. Gravity Model In International Trade Tij = β0+ β1 Pi + β2Pj+ β3 Ai + β4Aj + β5Dij+ β6Bij+ β7 (Li + Lj) + e Where, • Tij = bilateral trade between country i and country j • Pi = population of country i • Pj = population of country j • Ai = area of country i • Aj = area of country j • Dij = distance between country i and country j • Bij = common border between country i and country j dummy • Li , Lj = dummy for landlocked countries • e = error term • Researchers have added “Language and Cultural Ties” and “Colonial Ties” in the above model to capture the other possible exogenous influence on trade. • Notable studies that discussed gravity model are: Frankel and Romer (1999), Helpman (1988), Irwin and Trevio (2002), and Kim and Lin (2008)

9. Objectives Of The Study • Investigate the trend and pattern of trade growth in emerging markets during 1990-2011(22 years) involving exports, imports, surplus/deficit, trade intensity, and trade partners. • Determine the influence of globalization and freedom along with various socioeconomic macro variables in trade. Also, determine their extent of influence. • Identify the underlying factors determining the trade in emerging markets and measure their extent of influence. • Offer policy suggestions regarding trade in emerging markets.

10. Study Model Ti = β0 +β1 X1 + β2 X2 + …..…+ β11 X11 + β12 X12 + e •  Where (in no particular order), • Ti = Total Trade in country i • X1 = Globalization Index in country i • X2 = Economic Freedom in country i • X3 = Political Rights in country i • X4 = Civil Liberties in country i • X5 = Total GDP in country i • X6= Manufacturing as a percentage of GDP in country i • X7 = Primary Energy Consumption in country i • X8 = Life Expectancy at Birth in country i • X9 = Female Labor Force Participation in country i • X10 = Population in country i • X11 = Urbanization in country i • X12 = Higher Education Contribution in country i • e = error term • Expected relationship for all variables is positive.

11. Factor Analytic Model Derived • Ti = β0 +β1F1 +β2F2 + β3F3 + β4F4 + e • Where, • Ti = Trade in country i • F1= Quality of life in country i • F2= Size of country i • F3= Freedom in country i • F4= Manufacturing position of country i • e = error term

12. Methodology And Data Collection • Country Selection: data availability and a country has to be in at least 4 out of 6 groups • Emerging Markets (21 countries): Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, South Korea, Taiwan, and Thailand • Study Period: 1990-2011 (22 years) • Data Source: Euromonitor, The World Bank, Freedom House, Fraser Institute, The Economist, Foreign Policy/A. T. Kearney • All freedom variables and GCI were converted to a scale of 100 to attain consistency in the dataset

13. Findings • Table 1: Emerging Markets-Basic Indicators • Table 2: GDP and Trade Growth Ratio Pattern • Table 3: Univariate Statistics and Normality Test • Table 4: Correlation Matrix • Table 5: Reduced Model-Globalization and Freedom Variables • Table 6: Full Model-All Variables • Table 7: Full Model-Summary of Stepwise Selection • Table 8: Rotated Factor Pattern • Table 9: Regression Model with Factors

14. Openness and Quality of Life (22.25%) Figure 1 Factors Determining Trade in Emerging Markets Market Size (22.03%) Trade (76.68%) Freedom (19.17%) Manufacturing (13.23%)

15. Table 1 Emerging Markets-Basic Indicators

16. Table 1 (cont.) Emerging Markets-Basic Indicators

17. Table 2 GDP and Trade Growth Ratio Pattern

18. Table 3 Univariate Statistics and Normality Test

19. Table 4 Correlation Matrix

20. Table 5 Reduced Model-Globalization and Freedom Variables Model DF= 299, F-Ratio= 8.29** R-Square=0.10

21. Table 6: Full Model-All Variables Model DF= 283, F-Ratio= 345.09** R-Square=0.94

22. Table 7 Full Model-Summary of Stepwise Selection

23. Table 8 Rotated Factor Pattern

24. Table 9 Regression Model with Factors Model DF= 283, F-Ratio= 242.92** R-Square=0.78

25. Thank you for your patience Hope to see you someday, somewhere in this globalized world Questions or comments?