**5. Empirical results**

Before performing the estimations, F parameter test for fixed effects was conducted, which resulted in F statistic (F(3,109) = 112.25, P <sup>&</sup>gt;*χ*<sup>2</sup> <sup>¼</sup> <sup>0</sup>*:*00) large enough to show there is significant group effect, thus fixed effect model is preferred over OLS. In addition, fixed and random effect models are compared based on the Hausman test. Hausman test resulted in p-value (*χ*2ð Þ¼ <sup>3</sup> <sup>84</sup>*:*61, P <sup>&</sup>gt;*χ*<sup>2</sup> <sup>¼</sup> <sup>0</sup>*:*00<sup>Þ</sup> small enough to reject the null hypothesis and favors fixed effect over random counterpart. Further, Breuch-Pagan LM test favored OLS over random effect, thus results of OLS and fixed effect estimation are presented in **Tables 6** and **7**, former using FDI flow, and latter using FDI stock as independent variable.

In **Table 6**, the results of the OLS and fixed effect estimation for the Eq. (1) and (2) are presented utilizing FDI inflow as independent variable. Models (1) are (2) estimated regarding every four East Asian economic transition countries using OLS, and fixed effect, respectively, while Models (3), (4), (5), and (6) are estimated for each country.


#### **Table 6.**

*Estimation results using FDI inflows.*


*FDI and Its Impact on Trade in the East Asian Transition Economies DOI: http://dx.doi.org/10.5772/intechopen.97214*

#### **Table 7.**

*Estimation results using FDI inward stocks.*

Except Model (6), the impact of FDI\_flow on TRADE is shown positive and significant in every model at the .01 level. For Model (1), one unit increase in FDI\_flow is expected to increase TRADE by 0.611 units, holding all other variables constant. When time invariant effects are controlled in Model (2), the coefficient of FDI\_flow decreases to 0.157, but stay at the .01 significance level. Among the four East Asian economic transition countries, the impact of FDI\_flow on TRADE is show the highest in Vietnam, followed by China, Cambodia, and Lao PDR, respectively.

In Model (1), the sign of the coefficients of explanatory variables are shown as the study expected except for TAR. Although the coefficient of TAR is negative, it is insignificant. Also, when the time-invariant effects are controlled, the impact of TAR on TRADE is shown negative and significant in Models (2) and (5). This implies that increase in tariff rate negatively affects trade development of the country, especially in the case of Vietnam.

In addition, the coefficients of HUM are shown positive and significant in Models (2), (4) and (5) and positive but insignificant in other models. This indicates that human capital, proxied by the expected years of schooling, is important to improve trade development of the country. Interestingly, while the coefficients of GDP and FINA are shown positive and significant in most of the models, the coefficient of GDP is negative in Cambodia at the .05 level and the coefficient of FINA is negative and significant in China at the .01 level. This result suggest that

GDP growth or financial development does not always promote trade in the economy.

Moreover, the coefficients of EXC are shown negative and significant in Models (1), (5), and (6), particularly high in Cambodia. This implies that increase in exchange rate deteriorates the trade of the economy in Cambodia by decreasing export volume as the price of domestic goods and services rises relatively to other foreign competitors. The impact of WTO accession is shown positive in every model except for Vietnam, but the coefficients are not significant.

Utilizing FDI stock as independent variable, the results of the OLS and fixed effect estimation are presented in **Table 7**. Contrary to the estimation results in **Table 6**, the coefficients of FDI\_stock are positive but insignificant in Models (7) and (8). Even, it is shown negative and significant at .1 level in China, while it is positive at the 0.01 level in Vietnam. This result suggests that the relationship between the trade and FDI may significantly differ in empirical studies by the unit they are utilizing, and substitutability relationship could be found when FDI stock is used as explanatory variable.

In addition, the coefficients of HUM are shown positive and significant in every model, and the coefficients of GDP are also shown positive and significant in most models. Similar to Models (3) and (5) in **Table 6**, in Models (9) and (11), the coefficients of FINA are shown negative and significant in China and Vietnam. However, contrast to **Table 6**, the impact of exchange rate on trade is shown positive and significant in fixed effect model and in Lao PDR. This implies that the increase in exchange rate in Lao PDR is likely to increase imports in large amount. Last but not least, the coefficients of TAR and WTO are insignificant in every model in **Table 7**.
