Trends of Trade Interdependence and Prolifiration of FTAs in Asia: 1980-2010

In assessing the recent development of economic regionalism in Asia and elsewhere, it is important to carefully examine if the level of integration of intraregional trade is increasing or decreasing. However, it is not easy to answer this ostensibly simple question. There are two ways to assess the level of trade integration: de facto integration and de jure integration. With respect to de facto integration (actual level of interdependence in terms of trade flows), the answer depends on which Asian countries are being considered and which indicator is being used to measure trade interdependence. This paper compares the trade interdependence of different sets of Asian countries using various indices. With respect to de jure integration (the signing of free trade agreements [FTAs]), the number of signed FTAs in Asia is growing but the relation between trade interdependence and the signing of FTAs has not been sufficiently studied. The second half of this paper addresses whether de jure trade integration is ultimately brought about by high-level or low-level de facto trade integration. The analysis in this paper finds that a set of countries that have experienced de facto integration tend to sign a comprehensive agreement to solve issues associated with high levels of trade interdependence, while a set of countries whose level of economic interdependence is low or declining may require a goods-centered agreement to boost trade among members.