Possible Dynamic Effects of Afta for the New Member Countries

19 Pages Posted: 11 Jul 2003

See all articles by Emiko Fukase

Emiko Fukase

World Bank; World Bank - Development Research Group (DECRG)

L. Alan Winters

University of Sussex; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Abstract

We discuss the possible benefits of economic integration for the new members of ASEAN. Direct evidence on regional integration and growth is weak, but three indirect channels are possible. Openness increases access to foreign knowledge, which could help productivity growth. Trade liberalisation is likely to stimulate investment and might promote the integration of the regional production network. Binding liberalisation under AFTA would help 'lock-in' and accelerate liberal economic reforms. These gains are not automatic, however. Discriminatory liberalisation will switch imports from sources with high stocks of knowledge towards ASEAN countries, which have lower stocks, and so may lower productivity growth. We term this 'dynamic' trade diversion. In addition, local absorptive capabilities must be developed to benefit fully from technology transfer. Finally, we recommend extending AFTA commitments on an MFN basis in order to avoid static and dynamic trade diversions.

Suggested Citation

Fukase, Emiko and Winters, L. Alan Alan, Possible Dynamic Effects of Afta for the New Member Countries. Available at SSRN: https://ssrn.com/abstract=423345

Emiko Fukase (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

L. Alan Alan Winters

University of Sussex ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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