Long-term relationship between intra-trade and total trade of member countries of ASEAN

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Perera, Nelson; Metwally, Mokhtar M.
Long; term; relationship; between; intra; trade; total; member; countries; ASEAN; Business; Social and Behavioral Sciences
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This paper uses cointegration and regression analyses to examine the long-term relationship between intra-trade of the five original member countries of ASEAN, namely, Indonesia, Malaysia, Philippines, Singapore, and Thailand , and their total trade with non- member Countries of ASEAN. The LR tests based on maximal eigenvalue of the stochastic matrix and the trace of the stochastic matrix suggest that the null hypothesis of no cointegration cannot be rejected for all the five original members countries of ASEAN. Thus, there is no evidence of long-term relationship between intra-trade of each ASEAN member with other members and total trade with non-ASEAN countries. The regression results suggest that ASEAN intra- trade with both the Phillipines and Thailand grew at a much faster rate than the total trade of these two members during the period 1980-2004. The opposite seems to be true in case of Singapore. Its intra-trade with other ASEAN members grew at a much slower rate than its total trade. As for Indonesia and Malaysia, the growth in intera-trade with other ASEAN members was a little bit higher than the growth in their total trade. Hence, the postulates of the theory of customs unions gradually become increasingly more relevant to ASEAN trade with the Phillipines and Thailand. On the other hand, the past growth of ASEAN intra-trade with Singapore suggests that its economic integration with the other four members is not likely the increase their economic welfare if the current path of intra-trade growth continues.