ASEAN in a Regional Perspective
Jeffrey A. Frankel and Shang-Jin Wei

 

The conventional wisdom--based on simple trade share statistics--holds that trade within ASEAN is quite low, compared with other regions of the world. However, when allowance is made for income levels and other determinants of trade, the paper finds that, in fact, trade among the ASEAN economies is higher than one would expect. To the extent that this regional concentration of trade is attributed to regional trading arrangements, they appear to be trade-creating, not trade-diverting.

The rate of increase of trade within ASEAN, however, can be entirely explained by the rapid growth of the countries. The "gravity" model implies that trade among ASEAN countries should, in the future, rise about 12 percent a year faster than the world average, reflecting their more rapid economic growth. In addition, as the formerly autarkic Indochinese economies restore normal trade relations with the rest of the world over the coming decade, this factor alone would cause their trade to expand another sevenfold.

Foreign direct investment (FDI) has played a central role in the development of ASEAN countries in recent years. While data are limited, the paper finds that FDI helps promote exports from the source country to the destination country. There is no evidence that Japan has accelerated its economic interactions with Southeast Asia, beyond what can be attributed to simple economic growth rates.


Jeffrey A. Frankel is Professor of Economics and Director of the Center for International Development and Economic Research at the University of California, Berkeley, and Research Associate and Director of the Program in International Finance and Macroeconomics at the National Bureau of Economic Research.

Shang-Jin Wei is Assistant Professor of Public Policy at Harvard University's Kennedy School of Government and Faculty Research Fellow at the National Bureau of Economic Research.

 

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