ASEAN in a Regional Perspective
2017
Frankel, Jeffrey A. | Wei, Shang-Jin
Trade among the ASEAN economies is higher than one would expect, based on theirincome levels and other important determinants of bilateral trade. The same is true of tradewithin East Asia more broadly (or trade within an ASEAN-Australia-New Zealand grouping).To the extent that this regional concentration of trade is attributed to formal or informalregional trading arrangements, they appear to be trade-creating, not trade-diverting.The rate of increase of trade within ASEAN or within East Asia, however, can beentirely explained by the rapid growth of the countries. There is nothing left over toattribute to an intensifying bloc. Perhaps the regional concentration, which shows up fromthe beginning of the sample period, is not due to formal measures, such as the decision toform an ASEAN FrA, but rather to a shared trading culture. (Trade among SoutheastAsian countries will in the future naturally continue to grow more rapidly than incomes.)The openness of the Indochinese countries, suitably adjusted, was very low in 1992,but had almost doubled by 1994. If these formerly autarkic countries restore normal traderelations with the rest of the world over the coming decade, the gravity model predicts thattheir trade will expand another seven-fold, in addition to the expansion attributable togrowth.The stock of Foreign Direct Investment (FDI) is a significant determinant of trade.We find that bilateral FDI can be modelled analogously to bilateral trade. In both cases,there is no evidence that Japan has accelerated its economic interactions with Southeast Asia,beyond what can be attributed to simple economic growth rates.We accept others' arguments that the ASEAN countries' trade relations with theindustrialized countries are more important than their relations with each other. But we donot accept the argument that the latter are unimportant. If the ASEAN countries makeserious progress along the path that they have set for themselves under the AFTA, the gainsfrom increased trade and investment in the area are potentially important. Furthermore, suchprogress would give them more of a voice at the global level.
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