The impact of AFTA on intra-AFTA trade

- We examine the impact of tariff elimination under AFTA by applying a gravity model.
- Trade creation effects from tariff reduction are found for a wide range of products.
- Elasticity of tariff reduction on imports tends to be larger than that on exports.
- Tariff reduction promotes regional import of electronics and automobile equipment.
- Trade creation effects for new ASEAN members are smaller than for the old members.

ASEAN countries have liberalised intra-ASEAN trade over the last 20 years by establishing the ASEAN Free Trade Area (AFTA). This paper aims to examine the impact of trade liberalisation under AFTA on intra-ASEAN trade. By applying a gravity model, we find positive and significant trade creation effects from the tariff elimination for a wide range of products. In addition, the analysis reveals that the elasticity of tariff reduction on imports tends to be much larger than that on exports. Trade creation effects for the new ASEAN members are relatively small compared to those for the old members. Our results show that AFTA has been successful in promoting intra-AFTA trade, while we argue that further expansion may be achieved by increasing the use of AFTA and by reducing/removing non-tariff measures (NTMs) through such ways as improving customs procedures and harmonizing/mutually recognizing product standards.