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The ASEAN Free Trade Agreement:How Effective?

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  • Vaishnavi venkatesh

    () (School of Public Policy,George Mason University,3351 N Fairfax Dr, Arlington, VA 22201, United States. phone-+1 703-993-2280)

  • Ranajoy Bhattacharyya

    () (Indian Institute of Foreign Trade, Kolkata, India)

Abstract

A careful assessment of intra-regional and extra-regional ASEAN trade volumes from 1970 to 2010 reveals that there has been no significant change during the pre- and post-AFTA era. However, researchers working on the effectiveness of the ASEAN Free Trade Agreement have consistently reported positive trade creationary effects of AFTA. By reassessing the impact of AFTA through the Balassa method of estimating trade creation and diversion, and applying it to traditional gravity estimates, we find that (a) while ASEAN countries have spent more money per dollar earned on foreign goods in the post-AFTA period, this is generally true for all countries in the world, and (b) being a small region with significant historic trade ties, ASEAN, as a whole has always traded more amongst themselves, when compared to the world average, and this fact has been misrepresented as the trade creationary effects of AFTA. By comparing the coefficients of the regionalism dummies of ASEAN, within the scope of the gravity model, we find that there has been no significant change in these coefficients, when the sample is divided into the pre-and post-AFTA years. We thus conclude that the free trade agreement in question has had no significant impact on intra-ASEAN trade.

Suggested Citation

  • Vaishnavi venkatesh & Ranajoy Bhattacharyya, 2014. "The ASEAN Free Trade Agreement:How Effective?," Working Papers 1425, Indian Institute of Foreign Trade.
  • Handle: RePEc:ift:wpaper:1425
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    References listed on IDEAS

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    Keywords

    ASEAN; Free trade agreement; Trade creation; trade diversion; Regional trade.;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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