Impact of ASEAN Plus Five Free Trade Area: Trade Creation and Trade Diversion

Sony Vebiyanto; Hastarini Dwi Atmanti

doi:10.29259/jep.v20i2.18718

Impact of ASEAN Plus Five Free Trade Area: Trade Creation and Trade Diversion

Sony Vebiyanto, Hastarini Dwi Atmanti

Abstract

One of the ways to reduce international trade barriers is through the Free Trade Area (FTA). Collectively, ASEAN already has five FTAs with trading partners outside Southeast Asia. This study intends to analyze the effect of free trade agreements between ASEAN and China, South Korea, Japan, India, and Australia – New Zealand (ASEAN+5 FTA). The implications of an FTA are explained using the concepts of trade creation and trade diversion through economic integration. The trade gravity model is expanded with three dummy variables to determine whether trade creation and trade diversion occur in the formation of each of these FTAs. Static panel data regression is used to analyze the effect of Free Trade Agreements on intra-regional trade flows, export flows to non-members, and import flows from non-FTA members. The fixed effect model is applied to overcome endogeneity problems, while the PPML estimator is chosen to get the best estimation results amid heteroscedasticity and zero trade flow problems that usually occur in trade flows. Estimation results show that the trade creation effect occurs only in ACFTA and AIFTA, while other FTAs harm member countries through trade diversion. Therefore, further evaluation and efforts regarding the use of FTAs are needed to achieve the goals of FTAs.

Keywords

ASEAN, gravity, ACFTA, AKFTA, AIFTA, AJCEP, AANZFTA, PPML

Full Text:

PDF

References

Agung, A. S., Ishak, Z., Asngari, I., & Bashir, A. (2019). The Effect of ASEAN-Korea Free Trade Agreement (AKFTA) on Indonesia Trade: A Gravity Model Approach. Jurnal Ekonomi Pembangunan, 17(1), 1-7. https://doi.org/https://doi.org/10.29259/jep.v17i1.8916

Bacchetta, M., Beverelli, C., Cadot, O., Fugazza, M., Grether, J.-M., Helble, M., Nicita, A., & Piermartini, R. (2012). A Practical Guide To Trade Policy Analysis. World Trade Organization.

Baier, S. L., Yotov, Y. V., & Zylkin, T. (2019). On The Widely Differing Effects Of Free Trade Agreements: Lessons From Twenty Years Of Trade Integration. Journal of International Economics, 116, 206-226. https://doi.org/https://doi.org/10.1016/j.jinteco.2018.11.002

Bhattacharyya, R., & Mandal, A. (2016). India–ASEAN free trade agreement: An ex post evaluation. Journal of Policy Modeling, 38(2), 340-352. https://doi.org/https://doi.org/10.1016/j.jpolmod.2016.02.001

Chen, L., & Lombaerde, P. D. (2019). ASEAN Between Globalization And Regionalization. Asia Pacific Business Review, 25(5), 729-750. https://doi.org/https://doi.org/10.1080/13602381.2019.1652982

Egger, P. H., Larch, M., & Yotov, Y. V. (2022). Gravity Estimations with Interval Data: Revisiting the Impact of Free Trade Agreements. Economica, 89(353), 44-61.

Gharleghi, B., & Shafighi, N. (2020). Do Regional Trade Agreements Increase Trade? Empirical Evidence from the Asia–Pacific Region. Economic Affairs, 40(3), 419-435. https://doi.org/http://dx.doi.org/10.1111/ecaf.12435

Hadili, A., Al-Jafari, M. K., Gizelis, D. J., Bin, M., & Boukhris, A. (2021). Trade Liberalisation, Measurements, and Theories of International Trade: An Empirical Evidence from Recent Studies. Indian Journal of Economics Business And Public Administration Studies, 20(2), 71-90.

Haq, M., & Luqman, M. (2014). The Contribution Of International Trade To Economic Growth Through Human Capital Accumulation: Evidence From Nine Asian Countries. Cogent Economics & Finance, 2(1). 947000. https://doi.org/http://dx.doi.org/10.1080/23322039.2014.947000

Hayakawa, K., Kim, H.-S., & Yoshimi, T. (2017). Exchange Rate And Utilization Of Free Trade Agreements: Focus On Rules Of Origin. Journal of International Money Finance, 75, 93-108.

Hayakawa, K., Kim, H., & Lee, H.-H. (2014). Determinants On Utilization Of The Korea–Asean Free Trade Agreement: Margin Effect, Scale Effect, And Roo Effect. World Trade Review, 13(3), 499-515.

Kabir, M., Salim, R., & Al-Mawali, N. (2017). The Gravity Model And Trade Flows: Recent Developments In Econometric Modeling And Empirical Evidence. Economic Analysis And Policy, 56, 60-71.

Khurana, R., & Nauriyal, D. K. (2017). ASEAN-India Free Trade Agreement: Evaluating Trade Creation and Trade Diversion Effects. Journal of East-West Business. 23(3), 283-307. https://doi.org/10.1080/10669868.2017.1322548

Kohl, T., Brakman, S., & Garretsen, H. (2016). Do Trade Agreements Stimulate International Trade Differently? Evidence From 296 Trade Agreements. The World Economy, 39(1), 97-131.

Krugman, P., Obstfeld, M., & Melitz, M. (2018). International Economics Theory and Policy (11 ed.). Pearson.

Kusuma, A. A. (2017). Dampak Asean-China Free Trade Agreement (ACFTA) Terhadap Pertumbuhan Ekonomi Indonesia [ACFTA, Exchange Rate, Export, Import, Trade]. Jurnal Ekonomi Pembangunan, 15(1), 1-14. https://doi.org/10.29259/jep.v15i1.8778

Li, Q., Scollay, R., & Maani, S. (2016). Effects on China and ASEAN of the ASEAN-China FTA: The FDI perspective. Journal of Asian Economics, 44, 1-19.

MacPhee, C. R., & Sattayanuwat, W. (2014). Consequence Of Regional Trade Agreements To Developing Countries. Journal of Economic Integration. 29(1), 64-94. https://doi.org/10.11130/jei.2014.29.1.64

Magee, C. (2008). New Measures Of Trade Creation And Trade Diversion. Journal of International Economics, 75(2), 349-362.

Mareta, B. M. T. (2018). The Impact of ASEAN-Korea Free Trade Agreements on Indonesian Export of Manufacturing Goods. ETIKONOMI, 17(2), 161-184.

Mayer, T., & Zignago, S. (2011). Notes On CEPII’s Distances Measures: The GeoDist Database. CEPII Working Paper, 2011 - 25. https://doi.org/https://dx.doi.org/10.2139/ssrn.1994531

Mutreja, P., Ravikumar, B., & Sposi, M. (2018). Capital Goods Trade, Relative Prices, And Economic Development. Review of Economic Dynamics, 27, 101-122. https://doi.org/https://doi.org/10.1016/j.red.2017.11.003

Nguyen, D. B. (2019). A New Examination Of The Impacts Of Regional Trade Agreements On International Trade Patterns. Journal of Economic Integration, 34(2), 236-279.

Okabe, M., & Urata, S. (2014). The Impact Of Afta On Intra-Afta Trade. Journal of Asian Economics, 35, 12-31.

Plummer, M. G., Cheong, D., & Hamanaka, S. (2011). Methodology For Impact Assessment Of Free Trade Agreements. Asian Development Bank.

Salvatore, D. (2014). Ekonomi Internasional (9 ed.). Salemba Empat.

Sattayanuwat, W., & Tangvitoontham, N. (2017). Trade Creation and Trade Diversion of ASEAN’s Preferential Trade Agreements. IAFOR Journal of the Social Sciences, 3(1), 5-19.

Shepherd, B. (2013). The Gravity Model Of International Trade: A User Guide. United Nation ESCAP.

Shepherd, B. (2016). The Gravity Model Of International Trade: A User Guide (An Updated Version). United Nation ESCAP. https://www.unescap.org/sites/default/d8files/knowledge-products/GravityUserGuide-REVISED-02.pdf

Silva, J. M. C. S., & Tenreyro, S. (2006). The Log Of Gravity. The Review of Economics Statistics, 88(4), 641-658.

Singh, L. B. (2021). Impact of India-ASEAN Free Trade Agreement: An Assessment from the Trade Creation and Trade Diversion Effects. Foreign Trade Review, 56(4), 400-414. https://doi.org/10.1177/00157325211021503

Surugiu, M. R., & Surugiu, C. (2015). International Trade, Globalization And Economic Interdependence Between European Countries: Implications For Businesses And Marketing Framework. Procedia Economics and Finance, 32, 131-138.

Taguchi, H. (2015). Trade Creation And Diversion Effects Of Asean-Plus-One Free Trade Agreements. Economics Bulletin, 35(3), 1856-1866.

Thangavelu, S. M., Narjoko, D., & Urata, S. (2021). Impact of FTA on trade in ASEAN and Australia using customs level data. Journal of Economic Integration, 36(3), 437-461.

Thu, N. A., & Van Trung, V. (2015). Assessing the Impact of ASEAN+ 3 Free Trade Agreements on ASEAN’s Trade Flows: A Gravity Model Approach. Mediterranean Journal of Social Sciences, 6(6), 394.

UNCTAD. (2020). Key Statistics And Trends In International Trade 2020. In UNCTAD,

Viner, J. (1950). The Customs Union Issue. Carnegie Endowment for International Peace.

Wignaraja, G. (2014). The Determinants Of FTA Use In Southeast Asia: A Firm-Level Analysis. Journal of Asian Economics, 35, 32-45. https://doi.org/https://doi.org/10.1016/j.asieco.2014.10.002

WTO. (2022). Regional Trade Agreement Database. http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx

Yang, S., & Martinez-Zarzoso, I. (2014). A Panel Data Analysis Of Trade Creation And Trade Diversion Effects: The Case Of Asean–China Free Trade Area. China Economic Review, 29, 138-151.

Yotov, Y. V., Piermartini, R., Monteiro, J.-A., & Larch, M. (2016). An Advanced Guide To Trade Policy Analysis: The Structural Gravity Model. World Trade Organization.

DOI: https://doi.org/10.29259/jep.v20i2.18718

Refbacks

There are currently no refbacks.

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Jurnal Ekonomi Pembangunan
Jalan Raya Palembang-Prabumulih Km. 32
Jurusan Ekonomi Pembangunan, Fakultas Ekonomi Universitas Sriwijaya
Indralaya, Sumatera Selatan, Indonesia
Email: jep.unsri@gmail.com, Tel/Fax : (0711)580231

p-ISSN: 1829-5843, e-ISSN 2685-0788