Australia-Thailand Trade: An analysis of competitiveness and the effects of the bilateral FTA

This paper analyses bilateral trade between Australia and Thailand over the period 1990-2011 with special emphasis on the trade competitiveness of these two nations and the possible role played by the Thailand-Australia Free Trade Agreement (TAFTA) that entered into force in 2005. Trade competitiveness is measured with the aid of standard techniques used in the literature such as the revealed comparative advantage index, the cosine index of trade similarity, net exports ratio and constant market share analysis (CMS), while the impact of TAFTA is estimated through an export-demand model. The findings of the paper suggest that the composition of bilateral trade has changed significantly since the 1990s. The changes reflect shifts in the production structures of each economy, which are indicative of long-term economic structural changes. It is evident that the Thai-Australian trade relationship has undergone further adjustment since the establishment of the TAFTA. However, the changes in trade patterns are not necessarily due to TAFTA but, rather, part of a long term trend. The export demand model finds a significant positive impact of the TAFTA only on Australian exports to Thailand, but not vice-versa. The strongest trade link between the two countries has been the export of automotive vehicles from Thailand to Australia. By CMS analysis the findings indicate that Thailand’s export competitiveness significantly contributed to the remarkable growth of exports to Australia experienced over the period. On the other hand, Australia’s exports competitiveness to Thailand has suffered; the main reason being that Australia enjoys competitiveness in commodities, which are not in big demand in Thailand.