Economic Integration in ASEAN Region, and International Trade linkages with FDI, Tourism and Environment - Analysis and Evaluation of trade determinants at SITC I Industry Sector Level Using Four Gravity Models

Abstract

This research concerns a study of trade liberalisation and economic integration in the ASEAN region due to the formation and potential formation of AFTA/AEC, WTO, CP (TPP) and RCEP using SITC two-digit level export data employing theoretically grounded and empirically proven general equilibrium gravity framework. This empirical research examined the interrelationship between export trade, on one side, and FDI, tourism and environment externalities. It estimated the impact of the aforementioned RTAs including AEC formation, particularly regarding, (i) traditional trade determinants, 'behind the border' 'beyond the border' constraints, 'home bias' and 'globalization puzzles' (ii) trade creation and trade diversion effects of RTAs, (iii) complementarity/substitution effects between FDI and/or tourism, and export trade, (iv) comparative/competitive advantages across industries, and (v) carbon leakage, renewable energy , and infrastructure and institutions. The study was conducted using SFA, RE, FE and PPML gravity models for the 10 members of ASEAN and over 250 importing countries for the period 1995-2016 using two ten-year windows and a third one for the entire data. The ASEAN region has been grouped to three sub-regions based on stages of economic development of its member countries: the original five plus Vietnam (ASEAN6), the LDCs members (ASEAN3) and Brunei Darussalam (ASEAN1). The findings identified exports from the ASEAN regions major export destinations were other developing countries, except exports from SITC 3 and 5 were exports predominantly destined to developed countries. Membership in AFTA, CP (TPP), RCEP and WTO had trade creation effects, and limited trade diversion effects. ASEAN3 and ASEAN1 tended to be regional oriented whereas ASEAN6 was more multilaterally oriented. For ASEAN6 and ASEAN1, FDI/tourism was complementary in labour-intensive primary sectors. On the other side, for ASEAN3, FDI/tourism was complementary in manufactures, in addition. Carbon emissions caused negative externalities, and renewables are at embryonic stage in the region. Hence, the findings suggest integrating these results in policy decisions contribute to designing targeted public policies, and contribute to sustainable economic growth. Keywords: RTAs, Trade, FDI, tourism and Environment, Trade facilitations, and Development Cooperation.