Analysis of the proposed China-Asean free trade area: A gravity model and RCAI approach

Abstract

The China-ASEAN Free Trade Agreement (FTA) has been hailed as a Regional Trade Agreement (RTA) with great trade potential despite critics comment of there not been enough complementarities in the production processes of the integrating member countries. That there are two opposing views to the FTA necessitate thorough analyses of what the proposed FTA has to offer in terms of welfare improvement and the overall economic development. The underlying thesis attempts to evaluate if any complementarity exists in the production processes of the member economies or if their production processes are in direct competition to each other. It does this by way of a Revealed Comparative Advantage Index analysis. The welfare and developmental effects are addressed through a Gravity Model that attempts to capture potential trade creation and trade diversion effects. The model analysis would also help to answer the question of whether the proposed FTA is a de facto or de jure RTA.