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China-Japan-Korea (CJK)'s FTA Strategy towards ASEAN Countries: A Game Theoretical Approach


  • Fithra Faisal Hastiadi

    () (Waseda University and University of Indonesia)


This paper analyzes the FTA strategies of China, Japan and Korea (CJK) toward ASEAN countries using a three-player game. It explores the implications of China, Japan, and/or Korea participating in an FTA with ASEAN and the corresponding rewards in a payoff matrix. The Nash equilibrium occurs when China, Korea and Japan all choose to participate in an FTA with ASEAN. Dominant strategies and response functions for each country are analyzed using Error Correction Mechanism (ECM) and Vector Auto Regression (VAR) models. The paper also finds that Japan’s action to create FTA will be the most effective for regional settings. Although the game analysis is backward looking, it is a useful benchmark for understanding future FTA policies in East Asia.

Suggested Citation

  • Fithra Faisal Hastiadi, 2012. "China-Japan-Korea (CJK)'s FTA Strategy towards ASEAN Countries: A Game Theoretical Approach," Working Papers in Economics and Business 201210, Faculty of Economics and Business, University of Indonesia, revised Oct 2012.
  • Handle: RePEc:lpe:wpecbs:201210

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    References listed on IDEAS

    1. Feenstra, Robert C., 1995. "Estimating the effects of trade policy," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 30, pages 1553-1595 Elsevier.
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    3. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
    4. Harrison, Ann, 1996. "Openness and growth: A time-series, cross-country analysis for developing countries," Journal of Development Economics, Elsevier, vol. 48(2), pages 419-447, March.
    5. James P. Gander, 2008. "Dynamic Economic Game Theory and Asian Free Trade Agreements," Working Paper Series, Department of Economics, University of Utah 2008_18, University of Utah, Department of Economics.
    6. Tamura, Robert, 1996. "Regional economies and market integration," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 825-845, May.
    7. Hadi SOESASTRO, 2006. "Regional Integration in East Asia: Achievements and Future Prospects," Asian Economic Policy Review, Japan Center for Economic Research, vol. 1(2), pages 215-234.
    8. Kawai, Masahiro, 2005. "East Asian economic regionalism: progress and challenges," Journal of Asian Economics, Elsevier, vol. 16(1), pages 29-55, February.
    9. Baharumshah, Ahmad Zubaidi & Onwuka, Kevin Odulukwe & Habibullah, Muzafar Shah, 2007. "Is a regional trade bloc a prelude to multilateral trade liberalization?: Empirical evidence from the ASEAN-5 economies," Journal of Asian Economics, Elsevier, vol. 18(2), pages 384-402, April.
    10. Henrik Hansen & John Rand, 2006. "On the Causal Links Between FDI and Growth in Developing Countries," The World Economy, Wiley Blackwell, vol. 29(1), pages 21-41, January.
    11. Kawai, Masahiro & Wignaraja, Ganeshan, 2008. "Regionalism as an Engine of Multilateralism: A Case for a Single East Asian FTA," Working Papers on Regional Economic Integration 14, Asian Development Bank.
    12. Harvie, Charles & Lee, Hyun-Hoon, 2002. "New Regionalism in East Asia: How Does It Relate to the East Asian Economic Development Model?," Economics Working Papers wp02-10, School of Economics, University of Wollongong, NSW, Australia.
    13. Shujiro Urata & Kozo Kiyota, 2005. "The Impacts of an East Asia Free Trade Agreement on Foreign Trade in East Asia," NBER Chapters,in: International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14, pages 217-252 National Bureau of Economic Research, Inc.
    14. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    More about this item


    FTA; Game Theory; Error Correction Mechanism; Vector Auto Regressive;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - 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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