The Asean-6 Manufacturing Sector and Institutional Quality in the Midst of Soaring Global Value Chains

This study provides two analyses to measure the determinant of the manufacturing sector on international trade and determine the position of the manufacturing sector in the structural transformation, sequencing of each country. First, this study tried to oversee the determinant of manufacturing sector export and rank the ASEAN-6 manufacturing participation on global value chains (GVC). Second, we aimed to analyze the determinant variable of GVC participation through two approaches, backward and forward linkages, and estimated ASEAN-6 countries’ current position on structural transformation stages. In the first step, this study used the least square dummy variable (LSDV) approach to capture each country’s participation at once with determinant variable estimation. In the second step, this study used a random effect model to estimate the determinant variable for each backward and forward linkage between ASEAN-6 countries. We found the ASEAN-6’s order of manufacturing participation level where Vietnam leads, followed by Singapore, Malaysia, Thailand, the Philippines, and Indonesia. We also found that ASEAN-6’s structural transformation stage is on the level of limited manufacturing moving towards advanced manufacturing. We also carried out six different scenarios in order to capture the impact of each institutional quality variable. We found that higher control of corruption, rule of law, voice and accountability positively increase manufacturing forward linkages, while government effectiveness, political stability, rule of law, regulatory quality, voice and accountability positively stimulate manufacturing backward linkages. Hence, it is important for ASEAN-6 countries to strengthen their institutional quality especially from the bureaucracy effectiveness and law enforcement in order to compete and maximize the benefit of international trade openness.