Static, dynamic, and trade-linked computable general equilibrium model estimations of regional economic integration: The ASEAN illustration

This research attempts to evaluate the macroeconomic effects of the ASEAN free trade area (AFTA) with a computable general equilibrium (CGE) model analysis. Static, dynamic, and trade-linked CGE models of the ASEAN are developed to quantify the macroeconomic effects of external socks, changes in domestic policy, and regional grouping and market opening efforts through tariff reduction policies among ASEAN countries. In addition to the empirical evaluation of the impact, the focus of this research is on model development in order to represent the macroeconomic disequilibrium features in developing countries and the dynamic properties of the model for long-run analysis. The empirical findings from the ASEAN CGE model analysis differed from the common results, which usually supported the view that regional trade agreements among the developing countries have not been successful in generating gains from trade for their members because these countries have tended to follow mutually competing development strategies. As our results support the greater importance of domestic policy initiatives relative to regional grouping efforts, we could understand the argument. However, in all senses, we could not agree with the argument because trade liberalization policy through use of tariff reduction among the ASEAN countries induced welfare improvements which were not negligible to the participating countries. We have also shown that the trade volume within ASEAN would be magnified from its regional economic integration. Furthermore, if the ASEAN\u27s cooperative market opening toward the rest of the world is combined with the regional grouping effort, the positive effect would be remarkably increased. However, before opening its markets, ASEAN must consider the cost of trade liberalization, i.e., the negative effect on government budget and trade accounts. To lessen these costs, a combination of domestic policy and foreign policy should be carefully considered