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Abstract
Trade among the ASEAN economies is higher than one would expect, based on their
income levels and other important determinants of bilateral trade. The same is true of trade
within East Asia more broadly (or trade within an ASEAN-Australia-New Zealand grouping).
To the extent that this regional concentration of trade is attributed to formal or informal
regional trading arrangements, they appear to be trade-creating, not trade-diverting.
The rate of increase of trade within ASEAN or within East Asia, however, can be
entirely explained by the rapid growth of the countries. There is nothing left over to
attribute to an intensifying bloc. Perhaps the regional concentration, which shows up from
the beginning of the sample period, is not due to formal measures, such as the decision to
form an ASEAN FrA, but rather to a shared trading culture. (Trade among Southeast
Asian countries will in the future naturally continue to grow more rapidly than incomes.)
The openness of the Indochinese countries, suitably adjusted, was very low in 1992,
but had almost doubled by 1994. If these formerly autarkic countries restore normal trade
relations with the rest of the world over the coming decade, the gravity model predicts that
their trade will expand another seven-fold, in addition to the expansion attributable to
growth.
The stock of Foreign Direct Investment (FDI) is a significant determinant of trade.
We find that bilateral FDI can be modelled analogously to bilateral trade. In both cases,
there is no evidence that Japan has accelerated its economic interactions with Southeast Asia,
beyond what can be attributed to simple economic growth rates.
We accept others' arguments that the ASEAN countries' trade relations with the
industrialized countries are more important than their relations with each other. But we do
not accept the argument that the latter are unimportant. If the ASEAN countries make
serious progress along the path that they have set for themselves under the AFTA, the gains
from increased trade and investment in the area are potentially important. Furthermore, such
progress would give them more of a voice at the global level.