Sogang ilas research series on international affairs Volume 8

A Case Study for Vietnam and Singapore." This article analyses and compares the econom ic effects o f ASEAN Free Trade Area AFTA on the trade flow s o f Vietnam and Singapore.. F irst

Trang 1

S o g a n g H A S R e s e a r c h S e r i e s o

C O N T E N T S

ASEAN Free Trade Area: Discriminatory or Not?

A Case Study for V ietnam and Singapore

Yoon H eo

Validity and Policy Implications

J a e c h u n K im

Prospects o f Korea-China FTA

S i J o o n g K im

Secret Intelligences and State Structures:

The influence o f Secret Intelligences on Transformation K

o f the M odem State Structures

K y u Y o u n g L e e & M irk o Tcisic

Trang 2

I Editor’s note

It is my great pleasure to present the eighth volume o f the Sogang

HAS Research Series on International Affairs, the journal o f the Institute

o f International and Area Studies (T1AS) o f Sogang University.

The HAS o f Sogang University has the goal o f promoting research on

international issues from diverse perspectives, since it w as founded in

1997 Publishing this journal is one o f the major activities o f the HAS to

achieve the goal.

This volume includes four papers written by scholars o f diverse fields,

including international trade, international relations, and area studies This

fact is very much consistent with the journal’s policy o f promoting multi

disciplinary international studies Let me briefly summarize the papers o f

this volume.

The paper by N guyen K Doanh and Yoon Heo titled as “A SE A N Free

Trade Area: Discriminatory or Not? A Case Study for Vietnam and

Singapore." This article analyses and compares the econom ic effects o f

ASEAN Free Trade Area (AFTA) on the trade flow s o f Vietnam and

Singapore U sing the gravity m odel, the study show s a number o f robust

empirical findings F irst, on the multilateral trade flow's o f Vietnam and

Singapore, the model reveals no trade diversion follow ing integration

Second, trade flow s are not significantly affected im mediately follow in g

the signing o f the AFTA agreement Third, trade distance still remains a

hindrance to trade, indicating that globalization and integration h a \e not

Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn

Trang 3

innovations continue to reduce transportation costs Fourth, cultural

familiarity, as a proxy for linguistic affinity and colonial relationship,

continues to be an important determinant o f bilateral trade flows Finally,

differences in per capita income among trading partners continue to have

negative impacts on bilateral trade Efforts to narrow the GDP gaps

among members, improving social infrastructure, and continued domestic

reforms are suggested as remedies for the obstacles to freer flows o f

trade in the region.

The paper by Jaechun Kim is titled as “Normative Interpretation o f

Democratic Peace: Validity and Policy Implication.” The normative

explanation o f Democratic Peace stressing elites' role asserts that

peaceful conflict resolution norms and cultures o f democratic leaders

prevent conflicts among democracies from mounting to military disputes

According to this norm-based explanation o f Democratic Peace, leaders in

democracies apply such peaceful conflict resolution norms in their

relations with other democracies, because they try to follow the same

norms o f conflict resolution as have been developed within and

characterize their domestic political processes This paper claims that the

behavior o f democratic leaders during most o f the conflicts with other

democracies w as not consistent with the predictions o f elites’ norms-

based theories Throughout the conflicts between the US and other

nascent dem ocracies, it was the latter who appealed more to the peaceful

conflict resolution norm in earnest It was the latter w ho could use the

language o f democratic norms and culture more comfortably Since the

end o f the Cold War, quite a few Americans, scholars and policy-makers

Trang 4

should becom e the central focus o f U.S foreign policy in the post-Cold

War era Instead o f unilaterally projecting W estem -style dem ocracy, the

American leaders should grant to the foreign counterparts the com promise

o f “embedded democracy.” The Democratic Peace as U.S foreign policy

would do well to avoid becom ing a 21st century American campaign for

"benevolent assimilation.”

The paper by Si Joong Kim is titled as "Assessm ent o f Korea-China

Economic Relations and Prospects o f Korea-China FTA.” It investigates

the bilateral econom ic exchanges between Korea and China, which has

experienced rapid increases since they established diplomatic relations in

1992 The econom ic exchanges in diverse channels have shown both

quantitative increases and structural changes in this 15 year period,

mainly based on high-growth o f Chinese econom y Korean econom y has

benefitted from its rapidly-growing exchanges with China, enjoying such

effects as econom ic growth, price stability, and structural upgrading

However, its dependence on Chinese econom y increased sharply and

costs for too-rapid structural changes have not been negligible The claim

o f "industrial hollowing-out" due to China cannot find its solid ground

The prospects o f Korea-China FTA, which has been recently discussed in

public, are not clear In theory, the bilateral FTA would have mutually

beneficial effects In practice, the positive effects for Korea m a\ not be

that large or uncertain depending on the coverage and contents o f the

agreement A lso, the degree o f dependency on China would increase

further However, the negotiation power o f Korea is relatively weak The

alternatives will be either to establish a low -level traditional FTA in a

Trang 5

a long-term perspective The decision will not be easy, but it will have

severe consequences for future Korean economy.

The paper titled as “Secret Intelligence and State Structures” is

coauthored by Kyu Young Lee and Mirko Tasik It discusses the

influence o f secret intelligence on transformation o f modem state

structures Since Napoleonic Wars the importance o f secret intelligence

had progressively increased In the beginning, as a part o f military

crystallization, its scope and functions were limited and subordinated to

military purposes However, with the raise o f ‘political citizenship’ and

institutionalization o f the state the need for 'social stabilizer’ emerged,

especially in countries with sensitive geopolitical positions and complex

societies A s a result, secret intelligence’s functions and purposes had

diverged from the previous subordination to the military Hence, both

high military and civilian governing structures, which were in a quite

discordance throughout the 19th and early 20th century, increased their

dependence on secret intelligence After the October Revolution, secret

intelligence in Bolshevik Russia and later in Stalin’s Soviet Union

evolved from the state stabilizer into the nucleus o f the state crystalli

zation Its scope and functions were broadened, and its distributive power

within the state highly maximized The secret intelligence under Stalin

started to develop as another form o f military crystallization, altering the

previous concept o f war This directly had repercussion in U S, causing

creation o f the resembling ‘new generation’ secret intelligence.

Trang 6

and area studies in Korea by facilitating academic discussions Further, I

promise that the IIAS o f Sogang University will make its effort to

increase the number o f articles and improve the qualities o f the papers

published in this journal in the next volumes.

Decem ber 3 1 2008

Si Joong Kim

D irector Institute o f In ternational a n d A rea S tudies S o g a n g University'

Trang 7

A SE A N Free Trade Area: Discriminatory or N ot?

A Case Study for Vietnam and Singapore

N guyen K Doanh*

Yoon Heo**

Abstract

This paper analyses and compares the econom ic effects o f ASEA N

Free T rade A rea (A F T A ) on the trade f lo w s o f V ietn am and

Singapore U sin g the gravity m odel, the study show s a number o f

robust em pirical findings F irst, on the multilateral trade flow s o f

Vietnam and Singapore, the model reveals no trade diversion follow ing

integration Seco n d , trade flow s are not significantly affected im m e

diately follow in g the signing o f the AFTA agreement Third, trade

distance still rem ains a hindrance to trade, indicating that g lo b a li

zation and integration have not m itigated the relevance o f physical

distance even though tech n ological innovations continue to reduce

transportation c o s ts F o u rth , cultural fam iliarity, as a proxy for

lin g u istic a ffin ity and c o lo n ia l rela tio n sh ip , c o n tin u e s to be an

important determinant o f bilateral trade flow s F inally, differences in

per capita incom e am ong trading partners continue to have negative

impacts on bilateral trade Efforts to narrow the G DP gaps am ong

* Faculty o f Econom ics Thainguven U niversity, Vietnam , e-m ail: nkdoanh@ yahoo.com

* * P rofessor, G rad u ate S chool o f International Studies S ogang U n iv ersity , K orea,

e-m ail: bury:'« so g an g ac.k r

Trang 8

members, improving social infrastructure, and continued dom estic

reforms are suggested as remedies for the obstacles to freer flow s o f

trade in the region.

Keywords. AFTA Gravity Model, Trade D iversion Revealed

Comparative Advantage Intra-industry Trade, V ietnam

Singapore.

1 Introduction

Regionalism has becom e one o f the most salient trends in the global

econom y Even after the launch o f the WTO multilateral trading system,

the number o f regional trade agreements (R T A s) has increased rapidly,

expanding their scope and geographical reach across continents In spite

o f such incremental growth in RTAs, no consensus for the merits o f

RTAs has been confirmed yet Instead, these initiatives have led to

ongoing debate betw een econom ists and politicians over whether RTAs

represent 'b u ild in g b lo cs' or 'stu m b lin g b lo c s' E conom ists advocating

RTAs have heralded such agreements as stepping stones towards

w orldw ide free trade, w hich benefits individual countries because o f the

cost reduction resulting from intensified com petition, econ om ies o f scale,

and diversified consumers' choices In contrast, opponents h a \e argued

that these initiatives will be stumbling blocs, acting primarih to divert

trade from other countries to those countries receiving preferential

treatment.

The 'se co n d -b e st' nature o f liberalizations under RTAs m akes it

Trang 9

difficult to determine whether the welfare effects from RTAs w ill be

positive, even for the members o f the arrangements In addition,

empirical research has not succeeded in reaching firm conclusions on

whether trade creation outw eighs trade diversion For example

Karacaovali and Limao (2005) and Limao (2006) found stumbling bloc

effects for the cases o f EU and U S respectively In contrast, Miljkovic

and Paul (2003) found that trade creation occurs in US agricultural

exports to Canada because o f Canada - USA Free Trade Agreement

Therefore, the effects o f forming a regional integration agreement on the

welfare o f member countries and non-member countries will depend on

individual circumstances and can only be assessed on a case-by-case

basis.

Founded in 1992, A SE A N Free Trade Area (AFTA) aims primarily at

increasing A S E A N 's com petitive edge as the production base for the

world market To achieve this goal, the plan involved a lowering o f

intra-regionai tariffs, through the Common Effective Preferential Tariff

(CEPT) schem e, to 0-5 percent within a period o f 15 years com m encing

in 1993 Whether the formation o f AFTA has increased intra-regional

trade in the South East Asian region still remains a point o f controversy

in the literature Som e studies (e.g.,Elliott and Ikemoto, 2004) have

show'n that intra-regional trade in A SE A N was strengthened in the

1990s In contrast, other studies (e.g Endoh, 2000) have produced

opposite results.

This paper centers on the follow ing research objectives: F irst, using a

set o f m odels with fixed and random effects considered, it evaluates the

impacts o f accession to AFTA on the multilateral trade flow s o f

Vietnam and Singapore as a result o f trade creation and trade diversion

am ong member and non-member countries Second, it investigates the

Trang 10

issue o f whether or not RTAs can bring about regional econom ic

opportunities and how these opportunities can be fully exploited Third,

due to the varying levels o f development am ong member countries the

analysis in this paper aims to offer practical insight into whether or not

high and low -incom e members are equally affected Fourth, it exam ines

other key determinants o f the trade flow s o f Vietnam and Singapore and

finds the potential obstacles therein F inally, the paper derives policy

im plications based upon the empirical findings.

This study differs from the previous studies in several aspects First

instead o f pooling data across all countries, w e estimate a single

equation for Vietnam and Singapore1 This provides us with a better

understanding o f the impacts o f A FTA on the individual countries

Second, this study presents a set o f models: fixed effects model and

random effects model as discussed in section 2 Third, w e decided to

choose Vietnam and Singapore as case studies because Vietnam and

Singapore are in different stages o f developm ent In addition, although

there are a number o f studies on the effects o f regional trade integration

on its members (Athukorala and M enon 1997; Brada and M endez 1983;

Clausing, 2001; Fukase and Winters 2003; Heng and Gayathri, 2004;

Tang 2003) little research has focused on com paring the effects o f

AFTA on Vietnam and Singapore Another point o f interest is that

Vietnam 's tariff rates before joinin g A FTA w ere relatively high, w hile

those o f Singapore were close to zero Therefore, it w ould be interesting

to see how AFTA affects Vietnam, with its initially higher tariff levels,

and Singapore, with its lower tariff levels.

1 Sharm a and C h u a (20001 used single g ravity eq u a tio n for In d o n esia M alav sia the

P hilippines S ingapore and T hailand

Trang 11

2 M odel

2.1 A n a lytica l fra m e w o rk

To identify the effects o f the FTA, it is important to disentangle the

effects o f regional integration from other changes in the econom y A

standard way to control for those effects is to run a gravity m odel-, and

see whether the estimated relationships change as a consequence o f

implementing the FTA (e.g., Brada and M endez, 1983 and Carrere,

2006) For estimation purpose, the final regression equation is expressed

in log-linear form as follows:

log 7',„ = A + A tog GDP, log GDP,, +/J, log PGDP _ DIF 0 *P, log POP *

fi, log POP,, +A, log DIST„ +fi1BORD,l +/}, LANG,, +&EX _COL„ +fiKAFTA„ +u,„ (3)

Where: T,„ is the total trade volume between country i and

country j at the time t3

GDP,, is Gross Dom estic Product o f country / at the time /

GDP,, is Gross Domestic Product o f country j at the time /

POP,, is the population o f country / at the time /.

PGDP DIF„, is the difference in per capita GDP between

country i and country j at the time I (in absolute value),

measured as |PGDPlt - PGDP|,|.

POP,, is the population o f country j at the time r.

2 See T in b erg en ( l % 2 ) and U n n en m a n n (1966) for their pio n eerin g w orks.

3 C arrere (2006) Frankel (1993) and O k ubo (2006) used the sum o f ex p o rts and

Trang 12

DIST,,: Distance between the capital city o f country i and the

capital city o f country j

BORD/, is a dummy variable that equals 1 i f both country i

and country j have a com mon border, and zero otherw ise

LANG,y is a dummy variable that equals 1 if both country i

and country j have the same language, and zero otherwise

EX_COL,y is a dummy variable that equals 1 i f country / ever

has been colonized by country j or vice versa, and zero

otherwise.

AFTA,y, is a dummy variable that equals 1 if both country i

and country j belong to AFTA at the time t, and zero

otherwise.

u iji ' Residual term

The inclusion o f supply factor o f the exporting country (GDP,,) and

demand factor o f the importing country (GDP,,) is justified on the

ground that higher level o f exporting country’s G DP indicates higher

level o f production for exports, w hile higher level o f importing country's

GDP suggests higher level o f demand for imports Therefore, it is

expected that trade increases with the country size, as measured bv GDP

(Chionis and Liargovas, 2002; See Frankel, 1993), with other factors

kept constant.

Elliott and Ikemoto (2004), Tang (2003), and Roberts (2 0 0 4 )

incorporated p e r ca p ita G D P d ifferen c e variable, log (|GDPC, - G DPC ),

in order to test for the Linder H ypothesis A ccording to Linder

Trang 13

Hypothesis, countries with similar level o f per capita income tend to

trade more with each other because they have the most similar demand

patterns, and produce similar but differentiated products (Markusen el

a i , 1995) The positive sign fits standard H -O-S framework (e.g.,

Peridy, 2005), whereas a negative sign supports the Linder hypothesis

(e.g., Tang, 2003).

The theoretical justification for population variables (POP,, and POP,,)

is som ewhat imprecise On the one hand, large population could promote

a division o f labor and allow more industries to reach efficient

econom ies o f scale Thus, opportunities for trade with foreign partners in

a w ide variety o f goods will increase, suggesting a positive impact o f

population on bilateral trade (See Brada and M endez, 1983; O guledo and

M acphee, 1994) On the other hand, populous countries are assumed to

be larger in area and thus endowed with a greater quantity and variety

o f natural resources The bigger absorption effect o f this domestic

market causes less reliance on international trade transactions, indicating

a negative impact o f population on bilateral trade (See Aitken, 1973;

Bikker, 1987; Endoh, 1999; Endoh, 2000; Linnemann, 1966;

M artinez-Zarzoso and N owak-Lehm ann, 2003; Sapir, 1981) Therefore,

the coefficients for population could be positive or negative, depending

on which effect is dominant, an absorption effect or econom ies o f scale

effect.

Distance betw een trading partners (DIST,,) is used as a proxy for

several distance-related variables such transport cost, cost o f time,

"psychic distance"4 or “cultural cost”, and access to relevant market

Trang 14

information (See Linenman, 1966) All o f these factors reflect the cost

o f international transactions o f goods and services and are expected to

affect trade negatively (Al-M awali, 2005; Clarete el a i 2003;

Martinez-Zarzoso, 2003; and Bougheas et al., 1999) Therefore, we

expect that the sign o f the coefficient for DIST/j variable is negative.

Since lin g u istic a ffin ity, ex-co lo n y and com m only sh a re d borders tend

to reduce cultural distance and therefore encourage bilateral trade, it is

expected that the coefficients for these three dummy variables are

positive (Clarete et a i , 2003; Endoh, 1999; Geraci and Prewo, 1977;

Martinez-Zarzoso, 2003; Peridy, 2005).

Finally, a dummy variable is included to capture the integration effect

o f the FTA The coefficient on FTA could be negative or positive

depending on a case-by-case basis (see Brada and M endez, 1983; Baier

and Bergstrand, Ghosh and Yamarik, 2004; 2007; Cyrus, 2004; Yu and

Zietlow , 1995) A positive and significant coefficient on the FTA

dummy could imply that its members have traded with each other more

than the hypothetical level predicted by basic explanatory variables.

In this paper, w e em ploy two techniques, including the fixed effects

model and random effects m odel The fixed effects model allow s for

country-pair heterogeneity and gives each country-pair its ow n intercept

The fixed effects estimates can help us reduce potential specification

errors from omitting important variables One shortcom ing o f this m odel,

how ever, is that it does not allow for time-invariant variables to be

included5 Therefore, w e include the random effects m odel in order to

4 P sychic d istance in d icates the lack o f fam iliarity w ith an o th er c o u n try 's law s

in stitu tio n s, and h ab it (S ee D ry sd ale and G am a u t 1982

Trang 15

incorporate differences between cross-sectional entities by allow ing the

intercept to change, as in the fixed effects m odel, but the amount o f

change is random The advantage o f random effects model is that both

time-series and cross-sectional variations are used.

Apart from regression analysis, several trade indices are calculated and

incorporated into the present research in order to provide complementary

examination o f intra-ASEAN trade They include the Trade Intensity

Index, Revealed Comparative Advantage and Intra-industry Trade (See

Appendix 1 for the computable formulas).

2.2 D ata

According to Matyas (1997), the traditional cross-section approach is

affected by a severe problem o f m isspecification Drawing on his

critique, this paper uses the panel data for 23 countries over the period

o f 16 years, from 1990 through 2005 They include six ASEA N

countries6 (Indonesia, M alaysia, Philippines, Singapore, Thailand and

Vietnam) and 17 non-A SE A N countries7 (Australia, Canada, China

France, Germany, H ong Kong, India, Italy, Japan, Korea, Netherlands,

Norway, Spain, Sw eden, Switzerland, United Kingdom, and U SA ).

Yearly total trade between two countries is obtained from the IMF

Direction o f Trade Statistics-CD ROM The values o f com m odity trade

are extracted from TradeMap Data on GDP, GDP per capita and

5 E xam ples o f tim e-in v arian t v ariab les include distan ce, border, co m m o n language,

ex -co lo n iare latio n sh ip , etc

b W e ex clu d e th e co u n tries such as Laos, C am b od ia, M yanm ar, and B rune because

the neede datao th ese eco n o m ies are insufficient

Trang 16

population are obtained from World Econom ic Outlook Database-IMF

(W EO) Information regarding language and colonial relationship is

obtained from the Econom ist Intelligence Unit The distance betw een the

tw o capital cities is available from Indo.com Finally, data on tariff rates

are extracted from Market A ccess Map.

3 E m pirical results

3.1 R eg re ssio n resu lts

<Table 1> Regression Result fo r Vietnam

Explanatory- Variable F ix e d E ffects M o del R a nd o m E ffects M odel

Trang 17

This paper estimates the gravity model for Vietnam and Singapore

respectively over the period o f 16 years, from 1990 through 2005 The

estimations use annual data consisting o f 352 country pairs for Vietnam

(Vietnam 's trade with 22 countries for the period from 1990 through

2005) and 352 country pairs for Singapore (Singapore's trade with 22

countries over the period from 1990 through 2005).

G ra vity m o d el f o r Vietnam

The estimation results for Vietnam are given in Table I In the fixed

effects model, the variables log D!ST,„ BORD,,, LANG,, and EX COL,,

are dropped because these variables are time-invariant In the random

effects model, the variable "LANG,,” is dropped because it causes the

multicolinearity problem8.

As indicated in Table 1, the gravity model fits the data w ell,

providing explanation for the major variation in bilateral trade The basic

variables o f gravity equation behave as the model predicts All estimated

coefficients, except log POP,, and log o f POP,,, are statistically

significant at the 0.01 significance level.

Our main interest is in the impact o f AFTA on intra-bloc trade The

estimated coefficient on the AFTA dummy variable is negative and

statistically significant Therefore, membership in AFTA does not seem

to be important per se when other relevant variables are controlled We

estimate that joining AFTA would lead to a decline in V ietnam 's trade

Trang 18

with A SEA N countries by roughly 18.4percent, with other variables

controlledg.

GDP,, turns out to be the most important explanatory variable, not

unexpectedly The coefficient o f log GDP,, is on the higher side,

suggesting that GDP growth in Vietnam triggers and accelerates the

expansion o f trade The estimated coefficient o f GDP/, is also positive

and statistically significant, indicating that the larger GDP o f the trading

partner is correlated with increased trade with Vietnam In the

estim ation, when Vietnam has an increase in GDP by 100 percent,

V ietnam ’s trade w ill increase by 172 percent, w hile an increase in the

trading partner’s GDP by 100 percent w ould lead to an increase in trade

with Vietnam by 97 percent.

The coefficient on per capita GDP difference is negative and

statistically significant This indicates that countries with similar level of

incom e tend to trade more with each other It is estimated if the

difference in per capita incom e between Vietnam and its trading partner

increases by 100 percent, the bilateral trade between Vietnam and its

trading partner would decrease by 46 percent.

Although the estim ated coefficient o f log POP,, is statistically

insignificant, its negative sign could be indicative that the absorption

effect is greater than the econ om ies-of-scale effect in the trading

partners o f V ietnam 10 A large population may indicate a large domestic

9 W e w ill elab o rate m ore on this in sectio n 3.2

10 S ince th e co e fficie n t is not statistically sig n ifican t, th e resu lt is onlv in d icativ e

and m u st be interpreted w ith caution

Trang 19

market and a large resource endowment, so that the bigger absorption

effect o f this domestic market causes less reliance on international trade

transactions with Vietnam In contrast, positive sign o f log POP,, may

imply that the econom ies-of-scale effect is greater than the absorption

effect in Vietnam, which allow s the advantages o f econom ies o f scale to

be fully exploited.

In the random effects m odel, the results are relatively similar to those

o f the fixed effects model The coefficient on AFTA,>, is also statistically

significant Again the negative sign indicates that joining AFTA would

lead to a decrease o f 21 percent in bilateral trade between Vietnam and

A SE A N countries.

We also find the traditional positive signs on GDP and colonial

relationship, and negative sign on distance The estimated coefficient on

the log o f bilateral distance is negative and statistically significant We

estimate that an increase in bilateral distance by 100 percent leads to a

217 percent decline in bilateral trade An ex-com m on colonizer could

raise trade 96 percent In this m odel, the coefficient on com mon land

border is negative, but statistically insignificant.

G ra vity m o d el f o r S in g a p o re

The estim ation results for Singapore are presented in Table 2 In

the fixed effects m odel, the variables log DIST,y, BORD,, LANG,,

and EX_COL„ are again dropped because these variables are time-

invariant.

Trang 20

<Table 2> Regression Result for Singapore

Explanatory Variable

F ixed E ffects M odel R a n d o m E ffects M odel

In the fixed effects model, a very high degree o f explanation is

achieved All estimated coefficients, except log P G D P D IF it are

statistically significant at the 0.01 significance level A ll other

coefficients are not statistically significant.

W ith regard to the impact o f A FTA on intra-bloc trade, the result is

different from that o f Vietnam The estim ated coefficient on the AFTA

dummy variable is positive and statistically significant Therefore, a pair

o f countries that joins A FTA w ould likely experience an increase in

bilateral trade by a roughly 11 percent, with other variables held

constant A very tentative explanation for this could be that Singapore

m oved quickly to establish itself as a trade and investment partner o f

Trang 21

these countries once they were included in the AFTA.

The coefficients o f logs GDP,, and GDP,, are positive and statistically

significant It is estimated that an increase in Singapore’s and the trade

partner’s GDP by 100 percent would lead to an increase in bilateral

trade o f 57 and 102 percent respectively The coefficient o f log POP;, is

positive and statistically significant, indicating a greater econom ies-of-

scale effect compared with the greater absorption effect in Singapore’s

trading partners The coefficient on log POP,, is negative and statistically

significant This might indicate that larger population o f Singapore could

reduce its trade flow s with partner countries.

In the random effects m odel, the results are relatively similar to those

o f the fixed effects m odel Again the coefficient on A FTA is positive

and statistically significant Thus, joining AFTA would increase

Singapore's bilateral trade with ASEA N countries by 17.5 percent The

coefficients on logs o f GDP,, and GDP,, are positive and statistically

significant Therefore, an increase in the GDP o f Singapore by 100

percent would raise the bilateral trade between Singapore and its trading

partner by 56 percent, w hile an increase in the GDP o f the trading

partners would increase bilateral trade by 93 percent.

We also found the traditional negative sign on distance, and positive

signs on com m on language and ex-colonizer variables The estimated

coefficient on the log o f bilateral distance is negative and statistically

significant This indicates that an increase in the distance between

Singapore and its trading partner by 100 percent w ould indicate a

decrease in bilateral trade by 185 percent Being ever colonized

colonizer w ould increase bilateral trade between Singapore and its

Trang 22

ex-colonizer by 153 percent The coefficient on com m on land border is

inconsistent with the traditional sign.

Although the coefficient o f log PGDP DIF*, is not statistically

significant, its positive sign might indicate that the Singapore's partem

o f trade follow s Heckscher-Ohlin theory A s data indicate, Singapore

tends to trade more with ASEA N countries, w hose per capita incomes

are low Overtime the bilateral trade between Singapore and ASEAN

countries increases w hile the difference in per capita G DP between

Singapore and A SEA N countries increases That is a potential reason

why the sign o f the coefficient is in favor o f H -O -S framework.

3.2 C om plem en tary resu lts

Trade Intensity Index

Vietnam and Singapore's propensities to trade with A SEAN , as

measured by the trade intensity index, are given in Table 3-A and 3-B

Compared with Vietnam, Singapore exhibits larger values o f trade

intensity index for virtually all ASEA N countries The result seems

plausible since trade intensity indices are often high between neighboring

countries, and because Singapore is playing a role as an entrepot The

dominating impression is in terms o f trend Between 1990 and 2005

Singapore's trade intensity with A SE A N was on a slight increase, whereas

Vietnam's trade intensity with A SEAN declined This trend im plies that

the relative importance o f A SEAN as a trading partner to Vietnam has

been declining, w hile A SE A N has becom e more important to Singapore.

Trang 23

<Table 3-A > Trade Intensity Index, Vietnam as reporter«

Source: The a u th o r’s co m p u tatio n based on C O M T R A D E o f U N SD and IM F

D irection o f Trade S tatistics

11 The Trade In te n sity In dex (TII is incorporated into this research in o rd er to

ex am in e how stro n g th e trade ties are am ong A SEA N countries o v er tim e, and to

T IT

T II, = — — —

' T iw / r io, W here i is the country (reg io n )’s total trade w ith country

(region);, is countrys trade w ith the w ork j is the country (reg io n )'s total trade with

the w orld;«« is th e w o rld 's total trade A value o f Tlj greater than one im plying that

co u n try is m ore im portant for country than it is for the w orld trade as a w hole

Trang 24

<Table 3-B > Trade Intensity Index, Singapore as reporter

S o u rce: The au th o r's com p u tatio n based on C O M T R A D E o f U N S D and IMF

D irection o f Trade Statistics

Trang 25

Figures 1 and 2 provide overall picture o f V ietnam and S in g ap o re’s trading relations

w ith A SE A N and w ith the rest o f the w orld

E3 Vietnam's trade with ASEAN ■ Vietnam's trade with the world

S o u rc e: Based on IMF Direction o f Trade Statistics and TradeMap

Figure I show s that after joining AFTA in 1996, Vietnam ’s trade with

A SE A N countries has increased However, its trade with the rest o f the

world has increased much faster This leads to the situation where the

ratio o f Vietnam 's trade with ASEA N to its total trade has declined

□ S in g a p o re 's tra d e w ith A S E A N ■ S in g ap o re's trad e w ith th e world

Source: Based on IMF Direction o f Trade Statistics and TradeMap

Trang 26

In the case o f Singapore, the picture is different Singapore's trades

with ASEAN and the rest o f the world have increased overtime

However Singapore's trade with A SEA N countries has increased faster

than its trade with the rest o f the world Therefore, the share o f

Singapore's trade with A SE A N in its total has increased.

O bviously, the share o f Vietnam -A SEA N trade/Vietnam-world trade

has declined, whereas the share o f Singapore-A SE A N trade Singapore-

world trade has increased moderately This means that, compared with

Singapore, Vietnam is more dependent on the world market In other

words, after joining AFTA Singapore has been able to trade with

ASEA N countries more than has Vietnam Several factors are believed

to contribute to this phenomenon.

P atterns o f tra d e : The trade pattern between Vietnam and ASEAN as

w ell as between Singapore and A SE A N is given in Appendix I A s data

reveal, most o f the products for which Vietnam have comparative

advantage are the ones that other A SE A N countries also have

comparative advantage This indicates that Vietnam and other ASEAN

countries export and import similar products There are only four

product categories (codes 42, 50 63 and 65) that Vietnam exclusively

has comparative advantage H owever, the share o f Vietnam 's exports in

total A S E A N -6's exports o f these products to A SEA N market is

minimal, equal or less than 7.1 percent In short, the pattern o f trade

between Vietnam and other A SE A N countries are competing.

Because o f the com peting pattern o f trade, V ietnam 's exports have to

com pete with other A SE A N countries' exports for A SEA N markets In

addition, the A SEA N market is relatively sm all Therefore Vietnam

remains more dependent on the world market In contrast, the structure

ot trade between Singapore and ASEA N countries is rather complementary

Trang 27

For the products that Singapore has comparative advantage, the share o f

Singapore’s exports in A S E A N -6 ’s exports o f those products to ASEAN

is relatively high.

It is ob viou s that countries with sim ilar RCA profiles are

unlikely to have high bilateral trade intensities unless intra-industry

trade is in v o lv e d 12 T herefore, it is important to evaluate the

intra-industry trade betw een Vietnam and A SE A N , and between

Singapore and A S E A N V ietn am ’s and S in gapore’s intra-industry

trade with A S E A N is reported in the Appendix 2.

According to the Appendix 2, Vietnam has relatively high level o f

intra-industry trade with A SE A N for som e product categories However,

the share o f V ietnam ’s trade in total A S E A N ’s trade for these products

with A SE A N is small.

D iffere n t ta r iff rates: Tariff rates applied by Vietnam and Singapore

according to the AFTA/CEPT scheme are summarized in Table 4 It is

clear that Singapore’s econom y was already open to A SE A N countries'

exports even before the establishment o f AFTA However, ASEA N

countries' econom ies w ere not as open to Singapore as was Singapore’s

econom y to A SE A N countries So tariff reduction under the framework

o f AFTA means that A SE A N econom ies are slow ly becom ing more

open to Singapore H ence Singapore is able to trade more with ASEA N

countries The picture for Vietnam is quite different Vietnam 's econom y

w as not as open to A SE A N econom ies as was Singapore's econom y

Hence, tariff reduction under AFTA enables Vietnam to import more

I- In th is case, V ietnam an d o th e r A SE A N co u n tries have relativ ely sim ilar RCA

Trang 28

from ASEAN countries But, as indicated above, V ietnam 's export and

import com positions are similar to those o f A SE A N countries in its

revealed comparative advantage In addition, the major trading partners

(ROW) seem to be more open to Vietnam than to Singapore in terms of

tariff preference (Appendix 3) All these factors make Vietnam more

dependent on the world market.

Low level o f p e r capita in co m e: most o f A SEA N countries are

relatively poor According to the World Bank, Vietnam, Laos,

Cambodia, and Myanmar are classified as low -incom e countries:

Indonesia Thailand and Philippines as low m iddle-incom e countries:

Malaysia as middle-income econom ies; and Singapore and Brunei as

high-incom e countries13 As indicated above, A SE A N countries export

and import similar products, so intra-ASEAN trade could not be

intensified unless intra-industry' trade is involved However, intra-industry

trade is found to be related to market size and incom e because countries

with large market size and high and similar levels o f incom e per capita

often have high demands for and are able to produce similar but

differentiated goods.

G D P per capita to r A SE A N co u tries is p resen ted in A p p en d ices 4-A and 4-B

Trang 29

<Table 4> Average AFTA/CEPT Tariff Rates (roadmap and applied tariff)14

S o u r c e : A SE A N S ecretariat; V ie tn a m 's M inistry o f Finance.

14 V ietnam jo in ed A FT A in 1996 T h u s the data on A F T A /C E P T ro ad m ap is

av a iab le from 1996 For a d etailed ex p lan atio n on the trad e barriers in V ietn am , see

Trang 30

4 Policy im plication

E fforts to narrow the G D P gap: Given that the coefficient on per

capita GDP difference is negative and statistically significant, countries

with similar income levels tend to trade more with each other Taegi and

Oh (2001) and Zhang (2005) pointed out that intra-industry trade is

found to be positively related to market size and levels o f development

and incomes The possible policy implication for AFTA is to strive to

narrow the income gap between its members in an attempt to take full

advantage o f the benefits o f AFTA integration This implication is

derived from theories o f demand similarity, econom ies o f scale, and

monopolistic competition, which hold that countries with similar demand

patterns and income levels are likely to trade more with each other

Reversely, as Ben-David (1993, 1996), Ben-David and Kimhi (2004)

Cyrus (2004) and Sachs and Warner (1995) pointed out, w e expect that

increased intra-ASEAN trade will help converge per capita incomes

among ASEAN countries.

Im provem ent o f so cia l infrastructure Given the statistical significance

ot the coefficient on log DIST in the estimated m odels, it is expected

that trade between AFTA members w ill increase follow ing a

comprehensive development o f transport infrastructure, especially among

the least developed ASEAN countries This infrastructural development

w ill lead to a reduction in the econom ic distance between the integrating

countries Thus the improved infrastructure w ould increase intra-AFTA

trade This estimated trade creation should not have consequential effects

on the global trading system.

Trang 31

L o ck-in dom estic reform s: The coefficient on AFTA,; for Vietnam is

negative, w hile for Singapore it is positive It seems that a membership

in AFTA is more important to Singapore than to Vietnam This could be

due to the fact that Singapore moved quickly to establish itself as a trade

and investment partner o f these countries once it was included in the

AFTA For Vietnam, to fully exploit the preferential treatment among

AFTA member countries, a firm commitment to locking-in domestic

reforms including privatization, deregulation, transparent bureaucracies,

efficient education system, and a systematic legal system are required

A F T A a s a building bloc: On the effect o f AFTA on the multilateral

trading flow s, the model revealed no effect o f trade diversion from

AFTA Overall, it is estimated that AFTA is likely be a building bloc for

a global FTA Even though the coefficient for AFTA,; is positive and

statistically significant for Singapore, it does not mean potential trade

diversion Instead, in absolute terms, Singapore’s trade with the rest o f

the world is increasing faster than its trade with AFTA countries

Similarly, V ietnam ’s trade with AFTA countries has increased, but its

trade with the rest o f the world has increased more rapidly.

5 C onclusion

U sing the gravity m odel, this paper analyzed the effects o f AFTA on

the trade flow s o f Vietnam and Singapore The empirical results o f the

regression model show ed a number o f robust findings:

First, the model revealed no trade diversion follow ing integration The

Trang 32

non-discriminatory nature o f A SE A N is reflected in the fact that both

Vietnam ’s and Singapore's trade with the rest o f the world after joining

AFTA has increased faster than their trade with A SEA N countries Thus

AFTA are likely to be a non-discriminatory trade bloc, m oving faster

toward a more integrated world econom y In fact, w hile efforts to

enhance intra-Asian integration may be desirable, regional integration

cannot be a substitute for multilateral and unilateral liberalization

Second, trade has not increased im mediately as fast as it should because

o f dissimilarities in incom e levels, demand patterns, infrastructures and

trade policies (e.g tariffs) AFTA econom ies will have to map out

policies and strategies to bring about convergence in their incom e levels

in order to obtain the maximum benefits o f AFTA.

Third, trade distance remains a hindrance to trade flow s Integration

and globalization have enhanced communication, broken down cultural

barriers, and facilitated transactions H owever, they have not reduced the

importance o f physical distance Distance remains a barrier to trade even

though technological innovations continue to spark reductions in

transport costs.

Fourth, countries speaking com m on languages tend to trade more

since they can facilitate easier transactions and reduce the cost o f doina

business (e.g translations and disputes) Countries also tend to trade

more with their ex-colonizers since they are more familiar with the

cultural backgrounds and m odes o f doing business.

Finally, differences in per capita incom e am ong trading partners

continue to have negative impact on bilateral trade Efforts to narrow the

Trang 33

GDP gaps among members, improving social infrastructure, and

continued domestic reforms are suggested as remedies for the obstacles

to freer flow s o f trade in the region.

Trang 34

<A ppendices>

Appendix 1: Revealed Comparative Advantage (2001 -2005 Average) and the

Share o f Individual Country’s Exports in ASEA N ’s Total Exports to ASEAN

Product Description — — — -Rev‘ a k J -lácaniagejbr ASL4S-6

Inslnnncin PJii/p'nniM.jr VirtiT/TTVlPi> ¡h/lil/M Indonesia Malaysia Philippines Singapore Thailand

Trang 35

Share o f Individual Country s Exports in ASEAN's Exports to ASEAN Vietnam Indonesia Malaysia Philippines Singapore Thailand Vietnam

Trang 36

Trang 38

69 Ceramic Products _ 1.147 0.553 _ 0.467 0 056 1.934

Trang 39

Source: The au th o r's com putation based on International Trade C enter T rad eM ap14

l965;B alassa, 1979; B alassa and B ow ens, 1987; Son and W ilson, 1995; K alirajan

-v X-Y

R eveale C om parative A dvantage for com m odity o f country'; i is the co u n try 's exports o f com m odity; I is the co u n try 's total exports; i is the w o rld 's exports o f com m odity; is the w o rld 's total exports.A value o f m ore than unity im plies that

Trang 40

Appendix 2: Vietnam's and Singapore's IntraHndustn Trade with ASEAN in 2005

Product Description Singapore

l It'tnam

GL index Share GL index Share

Định dạng
Số trang	166
Dung lượng	28,42 MB