Sub-Regional Economic Cooperation In Southeast Asia : ITRO’s Effect to Rubber’s FDI Inflows & Indonesia’s Rubber Economic Multipliers

One of the valuable lesson learnt that region like ASEAN could learn from the experience of the most successful economic regional integration process (the European Union) is her forerunner sub-regional cooperation named the European Coal and Steel Community (ECSC) from 1952-1957. This organization called sub-regional because she was established by founding members of EU, a limited number of the EU’s members. It managed particular primary commodities from production to trade sides. Its cooperation was considered as an important factor on why EU could have closed economic relations. In Southeast Asian, ASEAN has similar organization. It was a subregional type because it had been established by limited founding members of ASEAN: Indonesia, Malaysia & Thailand. It also manages particular primary products, a natural rubber, from both sides: production & trade. Its name is ITRO (International Tripartite Rubber Organization).The most different factor between ITRO & ECSC is the establishment period on its regional organization’s establishment. ECSC was a forerunner for the EU since it was established before the EU while ITRO was established after the establishment of ASEAN. This article assumes that ITRO still has an effect on the trade and investment relations for its members which were similar to the ECSC. Strong trade & investment relations will give significant effect for enhancing economic cooperation among the members. This article attempts to prove the effect of ITRO establishment to the trade and investment relations among its members (Indonesia, Malaysia & Thailand). It tries to see how ITRO which represented by dummy of establishment’s time affect Foreign Direct Investment (FDI) inflows of natural rubber in Indonesia, Malaysia & Thailand. Dummy of time is time of the launch of the International Tripartite Rubber Organization (ITRO). It was in 2001. ITRO controls around 68% of world rubber production and 60% of world rubber exports. This article uses two approaches: macro & micro tools. For macro approach this article applies econometric model with panel data approach to estimate the effect of ITRO to FDI inflows on rubber together with other independent macroeconomic variables: real GDP, real exchange rate, degree of openness and production of rubber as an approach to natural rubber production. For micro approach this article applies input & output (I-O) analysis of the impact of rubber product to Indonesia’s economy comparing I-O year 2000 and I-O year 2005.