ASEAN Free Trade Area (AFTA) : how far have we come? : analysis and evidence on effects of AFTA

Abstract

This thesis addresses issues concerning trade effects of a particular RTA: AFTA. In the first part of the thesis, 2 different but related gravity frameworks are constructed as to evaluate the independent effects of AFTA on relevant countries’ trade flows. The first paper proposes examining ‘AFTA-effects’ on members’ trade, specifically within the AFTA context. This aims to distinguish trade effects that AFTA has had on early and delayed members’ trading patterns. The panel ‘Gravity Model’ is constructed, pointing to control for several biases commonly observed in the cross-section model. Although the result implies that early members do share trade benefits from AFTA more than non-members, the overall ‘AFTA-effects’ on the membership’s trade have not been benign. Another paper measures ‘AFTA-effects’ on both members’ and non-members’ trade. This aims to assess whether AFTA has played a role as an export base for the international market. In this case, ‘AFTA-effects’ appeared positive. Such effects are driven by an enhancement in extra-export bias, suggesting that the membership’s exports to outside destinations have increased post-AFTA. The last paper provides a theoretical framework addressing the incidence of RTA-membership expansion. The fact that AFTA was gradually established and empirical results indicating AFTA’s impacts on members and non-members brings about the idea that bloc-membership expansion could plausibly be explained by the economic effects that these countries have received. The corollaries of trading with/without RTA-membership of a potential member’s gains of trade and welfare levels are related to the decision towards membership. Even though welfare effects are not always greater, the RTA-membership status surely benefits member countries in gains from trade more than non-members. This can be perceived as one of the important reasons to explain the widespread regionalism worldwide and why joining the RTA is often seen as a safe haven strategy for a country.