AFTA and the Asian Crisis: Help or Hindrance to ASEAN Intra‐Regional Trade?

Abstract

Using a modified gravity equation, this paper examines ASEAN intra‐ and extra‐regional bias in bilateral trade flows and how these relationships have altered over time. We pay particular attention to the periods before and after the signing of AFTA as well as the crucial years prior to and following the Asian crisis. Given the ‘openness’ of ASEAN countries we consider not only intra‐ASEAN trade but also the effect of AFTA on non‐members. We find that trade flows were not significantly affected in the years immediately following the signing of the AFTA agreement and also that the traditional stance of ASEAN countries to outward‐oriented economic activity has not been significantly damaged but rather stimulated by the AFTA process and/or the Asian economic crisis. We do find, however, that that one effect of the Asian economic crisis was to generate a stronger desire to source imports from within the region.

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