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Regional Economic Integration and Trade Flows: The Experience of Asean-5 and Japan

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Abstract

This study determines the effect of regional economic integration, namely the ASEAN Free Trade Area, on bilateral trade flows between the ASEAN-5 countries and their major trading partner, Japan. The analysis begins with the construction of a simple country-specific index based on the Common Effective Preferential Tariff (CEPT) scheme of AFTA to measure the progress of economic integration of each ASEAN-5 country. The index is then used to determine the effect of this economic integration on bilateral trade flows between the individual ASEAN-5 country and Japan. The empirical results of this study based on the Autoregressive Distributed Lag (ARDL) approach show that there is a significant trade creation between ASEAN-5 and Japan after the implementation of the regional free-trade area. The Philippines and Malaysia are the two most benefited countries, in terms of trade flows to Japan, from the regional economic integration of AFTA. The results also show that the other three countries, namely Indonesia, Singapore and Thailand, have gained in trade flows to Japan due to the Japanese foreign Investments in the countries.

Suggested Citation

  • Hui-Boon Tan & Chen-Chen Yong, 2008. "Regional Economic Integration and Trade Flows: The Experience of Asean-5 and Japan," NUBS Malaysia Campus Research Paper Series 2008-07, Nottingham University Business School Malaysia Campus.
    • Handle: RePEc:nom:nubsmc:2008-07
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    More about this item

    Keywords

    AFTA; Economic integration; Trade flows; Foreign direct investment;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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