Regional economic integration and trade in ASEAN: evidence from two episodes of financial crises

This study empirically investigates the effect of the two episodes of financial crises on ASEAN trade using the gravity model.It further examines whether the formation of the ASEAN Free Trade Area (AFTA) and ASEAN Economic Community (AEC) resulted in an increase in intra ASEAN trade for the period 1986 to 2010.This study makes a contribution to trade literature to include financial sector in the model which has been ignored from previous studies.From basic gravity variables, the results found that market size, population, relative endowment, financial sectors, distance and common border are the main determinants of bilateral trade in ASEAN.The result reveals that the AFTA and AEC did trigger intra ASEAN trade.Evidence from Asian financial crisis shows that intra ASEAN still increases during that period.However, the inclusion of financial sectors, the result is insignificant. This study reveals that the global crisis 2007/08 did distort the intra ASEAN trade