China-Japan-Korea (CJK)'s FTA Strategy towards ASEAN Countries: A Game Theoretical Approach

Fithra Hastiadi

No 201210, Working Papers in Economics and Business from Faculty of Economics and Business, University of Indonesia

Abstract: This paper analyzes the FTA strategies of China, Japan and Korea (CJK) toward ASEAN countries using a three-player game. It explores the implications of China, Japan, and/or Korea participating in an FTA with ASEAN and the corresponding rewards in a payoff matrix. The Nash equilibrium occurs when China, Korea and Japan all choose to participate in an FTA with ASEAN. Dominant strategies and response functions for each country are analyzed using Error Correction Mechanism (ECM) and Vector Auto Regression (VAR) models. The paper also finds that Japan’s action to create FTA will be the most effective for regional settings. Although the game analysis is backward looking, it is a useful benchmark for understanding future FTA policies in East Asia.

Keywords: FTA; Game Theory; Error Correction Mechanism; Vector Auto Regressive (search for similar items in EconPapers)
JEL-codes: C22 C70 F13 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2012-10, Revised 2012-10
New Economics Papers: this item is included in nep-gth and nep-sea
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