Intra-trade potentials of ASEAN :evidence from gravity model

Abstract

In international trade, economic theory has highlighted its composition but delves less into its volume and direction, which are of more political and economic importance to countries. Intra-ASEAN trade is found to be very small. This study endeavors to make a formal analysis of the main determinants of intra-ASEAN bilateral trade and the existence of trade creation or trade diversion. Based on cross-sectional data, the gravity model is estimated for three periodsf; 1985, 1995 and 2000. The results obtained do indicate that intra-ASEAN trade is consistent with the standard gravity model. The inclusion of the ASEAN and APEC dummy variables suggest that trade-creating benefits are emerging amongst ASEAN member countries though APEC is a wider economic grouping. ASEAN countries do have great potentials to enhancing intra-regional trade through further trade liberalization.