JCER DISCUSSION PAPER No.77 AFTA in the Dynamic Perspective of Asian Trade by

This paper attempts to provide an initial assessment on the trade effect of AFTA in the dynamic context of the East Asian economy in the 1990s. For this analysis, we have calculated a trade matrix confining on manufactured products for five major ASEAN countries and three major non-partners (Japan, Korea and China) for 1992 and 1999, a set of international competitive indices (ICI) of Thailand and China in 15 manufacturing sectors for the period 1988-1999, and a set of export similarity indices (ESI) for Thailand-China, Thailand-Korea and Thailand-Japan, basing on three-digit SITC manufactured products. The paper showed that the trade and FDI effects of AFTA have not been as strong as the theory of a free trade area predicts. Intra-ASEAN trade has indeed expanded, but ASEAN trade with non-partner countries in East Asia has expanded at a higher rate. Moreover, major non-partner countries in East Asia such as Japan, Korea and China have also expanded their manufactured exports to the ASEAN market at a faster rate than to the rest of the world. The effect of AFTA on FDI inflows also ha