Trade Creation or Diversion? An ASEAN Perspective

Sammanfattning: The objective of this paper is to assess the bilateral exports from an origin to a destination, in the context of countries belonging to the Association of South-East Asian Nations (ASEAN), and whether or not the ASEAN Free Trade Agreement (AFTA) leads to trade creation or trade diversion, or both. To study this, a panel gravity model is employed with 135 countries, from 2000-2014, using a Poisson Pseudo-Maximum Likelihood method (PPML). To study the impact of AFTA on trade creation/diversion, a set of three dummy variables are used, denoting whether the origin country belongs to ASEAN, whether the destination country belongs to ASEAN and finally, whether both origin and the destination countries belong to ASEAN. Along with AFTA, five other Regional Trade Agreements (RTA) are also taken into account. The main finding of this paper is that there is no pure trade creation nor pure trade diversion due to AFTA, but rather a significant export trade creation, that is, ASEAN’s exports to the rest of the world is positive and significant. Future policy implications could include measures to strengthen the regional economic cooperation amongst the members of ASEAN.