The Time-Varying Impact of Regional Trade Agreement: Evidence from ASEAN

Abstract

Regional Trade Agreements such as ASEAN Free Trade Area (AFTA) are expected to increase the trade flows among member countries through trade creation and trade diversion. This paper employs the gravity model using manufacturing trade data to analyse this hypothesised effect in a time-varying context. The estimation results suggest that AFTA has expanded the trade substantially. The trade creation effects occurred immediately, but the effects tend to decrease overtime. On the other hand, trade diversion was insignificant in the short-term, but the effects increased gradually over time.