ASEAN Economic Community: Analysis Based on Fractional Integration and Cointegration

This paper deals with the analysis of the trade balances in the 10 countries that form the ASEAN Economic Community (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, The Philippines, Singapore, Thailand and Vietnam). For this purpose, we use standard unit roots along with fractional integration and cointegration methods. The latter techniques are more general than those based on integer differentiation and allow for a greater degree of flexibility in the dynamic specification of the series. The results based on unit roots were very inconclusive about the order of integration of the series. In fact, using fractional integration, the two hypotheses of stationarity I(0) and non-stationarity I(1) were decisively rejected in all cases, with orders of integration ranging between 0 and 1 and thus displaying long memory and mean reverting behavior. Focusing on the bivariate long-run equilibrium relationships between the countries, a necessary condition is that the two series must display the same degree of integration. This condition was fulfilled in a large number of cases. We observe some relations where cointegration could be satisfied, mainly involving countries such as Cambodia, Indonesia, Malaysia and the Philippines.