Are the Economies of ASEAN and the EU Complementary?

Abstract

The revival of EU-ASEAN economic relations has recently been stirred by the EU-ASEAN Vision Group that was set up in 2005, with the aim of looking into the possibility of a free trade area (FTA) between the two regions. This article analyses the economic feasibility of an EU-ASEAN FTA by measuring the degree of complementarity existing between the economic structures of both regions. The idea is that the greater the complementarity, the higher the scope for trade expansion between the two economies, the lower the costs induced by resource reallocation and the more desirable and successful the FTA. Using a standard trade complementarity index, we find a clear manufacturing-services complementarity between the two regions. At a lower level of aggregation, ASEAN displays a relative comparative advantage in automatic data processing machines (an EU structural weakness). Moreover, for the large majority of manufactured products traded, intra-industry trade (IIT) ratios are relatively low, denoting important trade complementarities between the two regions in general.

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