The Economic, Environmental, and Geopolitical Impacts of ASEAN-China Free Trade Area (ACFTA) on Indonesia

The normalization of political relationship between ASEAN and China brings a closer economic cooperation between them. It culminated through the establishment of ASEAN-China Free Trade Area (ACFTA). In this research, I analyze the economic, environmental, and geopolitical impacts of ACFTA on Indonesia. The economic analysis covers trade expansion and consumer welfare effect of bilateral trade between Indonesia and China under ACFTA framework using partial equilibrium approach. Then, I make a comparison between the result of partial equilibrium approach and the result of existing literature that uses general equilibrium approach. Based on the results, I estimate the increase of energy demands and CO2 emissions from Indonesian perspective using Indonesia’s input-output data, which is part of environmental analysis. The simulation results indicate Indonesia will likely expand its export to and import from China. However, the trade expansion between them might be asymmetric since the Indonesia’s import expansion might be faster than Indonesia’s export expansion. The trade expansion will also increase Indonesia’s energy demands. Due to the dependency of Indonesia on fossil fuels, the increase of energy demands will increase the CO2 emissions as well. At the end, I analyze and discuss the geopolitical implication of ACFTA, particularly on Indonesia.Economics and Management of Network IndustriesEngineering and Policy AnalysisTechnology, Policy and Managemen