The impact of Asean free trade area on intraasean manufacturing trade

This study investigates the effects of ASEAN Free Trade Area (AFTA) agreement on the bilateral manufacturing trade between the 10 member countries of ASEAN and 39 of their trading partners. The period of study covers 1995 to 2014. Results obtained from panel data analysis of the gravity model with random effects show that the economic sizes, populations, relative endowments, common language and geographical factors like distance, island, landlocked and neighbour are significant determinants of the bilateral manufacturing trade for ASEAN member countries. Moreover, results obtained from the fixed effects model in this study suggests that AFTA has generated pure trade creation effects in terms of exports. On top of that, AFTA has resulted in larger magnitude of trade creation effects in imports than import diversion effects. Overall, AFTA promotes trades among ASEAN member countries through the elimination of tariff and non-tariff barriers, for bringing about pure trade creation effects in terms of exports as well as imports and also trade diversion effects in terms of imports. In sum, this study with more recent data set covering more ASEAN trading partners shows empirical evidence to justify the success of AFTA arrangement