Trade Diversion and Creation Effect of Free Trade Agreements in ASEAN: Do Institutions Matter?

Abdulkareem Alhassan () and Cem Payaslioğlu ()
Additional contact information
Abdulkareem Alhassan: Federal University of Lafia
Cem Payaslioğlu: Eastern Mediterranean University

Journal of the Knowledge Economy, 2024, vol. 15, issue 1, No 36, 917-935

Abstract: Abstract There has been a proliferation of free trade agreements (FTAs) over the last three decades and the Association of Southeast Asian Nations (ASEAN) has since greatly embraced the development. However, research on the effect of trade agreements on trade in the Southeast Asia region has not received adequate attention. The few studies conducted on the issue fail to account for the heterogeneity of the FTA effects and the role of the quality of domestic economic and political institutions in shaping the effects. Therefore, this study evaluates the role of institutions vis-a-vis the trade diversion and creation effects of the FTAs on trade flow in ASEAN over the period 2000–2018. The study accounts for FTA endogeneity and multilateral resistance terms by estimating a structural gravity model using Poison pseudo-maximum likelihood with a high-dimensional fixed effect (PPMLHDFE). The findings reveal that the inclusion of the indicators of political and economic institutions into the specification significantly changed the magnitudes of the trade creation and diversion effects of FTA on international and intra-ASEAN trade. And, the effects of the quality of institutions are robust to the different trade flows (total trade, exports, and imports) of the ASEAN economies. Therefore, we conclude that the trade diversion and creation effects of the FTAs on trade flows in ASEAN largely depend on the quality of economic and political institutions in the region.

Keywords: Trade creation; Trade diversion; Institutions; Trade agreement (search for similar items in EconPapers)
JEL-codes: F13 F15 O24 O43 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s13132-023-01108-z Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:jknowl:v:15:y:2024:i:1:d:10.1007_s13132-023-01108-z

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/13132

DOI: 10.1007/s13132-023-01108-z

Access Statistics for this article

Journal of the Knowledge Economy is currently edited by Elias G. Carayannis

More articles in Journal of the Knowledge Economy from Springer, Portland International Center for Management of Engineering and Technology (PICMET)
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().