The Impact of macroeconomic variables on Cambodia garment export using Bayesian Regression

Abstract

This dissertation aims to evaluate the impacts of Macroeconomic indicators on Cambodian garment export. The Garment industry has rooted in Cambodia since 1993 and plays a major role in the industrial sector with its share jumping from year to year, particularly from the year of 2004. It has proved and offers a great potential to contribute significantly to economic and social development in the country. The contribution of the apparel sector plays the leading role in lifting millions of Cambodian people out of poverty, primarily changing the lives of rural women through employment. This has been proved that the role of garment industry particularly the garment export has significantly impact on Cambodian economy. Hence, this study aims to demonstrate the impact from Macroeconomic variables on garment export in Cambodia with two particular objectives of the study which is; the first one, we would like to investigate the impact and relationship of the Macroeconomic Variables on the Cambodian Garment export. Secondly, we would like to provide ideas on policy implication for Cambodia in order to ameliorate the garment sector in Cambodia. This study has chosen Garment export as the dependent and five indicators of macroeconomic which will be the independent variables such as; Global GDP growth rate, FDI, nominal exchange (Riel/USD) rate, unemployment rate, and inflation rate. By employing the time series data for 12 years that is from 2008 to 2019. Bayesian Regression with Markov Chain Monte Carlo (MCMC) are introduced to be the methodology in order to analyst and estimate the empirical study. Bayesian regression with MCMC used the Gibbs Sampling to sample from conditional posterior distributions. The empirical result shows that Global GDP (2.93), and Unemployment rate (1.102) have positive impact to Garment export in Cambodia. This confirmed that the two indicators increase (decrease) one-unit cause Garment export in Cambodia increase (decrease) with value of means of each variable. However, FDI (-5.1390), Exchange rate (-3.825), and Inflation rate (-2.848) show the negative relationship with Garment export. For FDI, it shows that the amount of investment may not contribution into Garment export alone, however, the investment may has contributed to other sector too namely; footwear, bicycle. For Exchange rate in Cambodia, the depreciation of Riel currency would be the appreciation of USD currency and encourage more investment and as well as stimulate the export in the country. The result shows the opposite sign between inflation and garment export. As the price level drops, it will lead the interest rates fall, the real exchange rate will depreciate and this result will lead to increasing in net exports. To ensure the stationary process in the chain, Markov Chain diagnostic tests have been used through many important tests, such as; Geweke Test, Raftery and Lewis Test, Autocorrelation test, and Cross-correlation test. All the test confirmed stationary and convergence in the chain. What is more, the study also visual some necessary plot such as Kernel Density plot, it illustrates the normal distribution and variance shows its inverse gamma distribution. Trace plot shows how fast the variables and variances converged. Running mean plot demonstrates stability of each variable and variance after burin-in period, and last but not least, autocorrelation plot shows the correlation of all parameters and variances.