ASEAN - China Free Trade Area : A quantitative study of Trade diversion and Trade creation effects on ASEAN - China trade flows

The Association of South-East Asian Nations (ASEAN) and China have a long history of trading with each other. They are economic partners as well as competitors for many years. In order to push their economic relationship to a higher level, in November 2002, ASEAN and China signed the initial framework agreement, determined on establishing the ASEAN - China Free Trade Area (ACFTA) among the eleven countries by 2010 for the ASEAN-6 (Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand) and by 2015 for the transitional economies of Cambodia, Laos, Myanmar and Vietnam (the CLMV). There are fears that China’s rapid development recently will encourage ASEAN’s exports to flow into its giant domestic market instead of among the members countries. Also the benefits of the Free Trade Agreement are still unclear. The Thesis uses three gravity models and the panel data of 11 countries from 1992 to 2009 to test two hypotheses: trade diversion (that expanded trade with China will reduce intra-trade within ASEAN) and trade creation (that ACFTA will boost up bilateral trade between ASEAN and China)