Intra-industry trade and business cycles in ASEAN

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Intra-industry trade and business cycles in ASEAN

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Title: Intra-industry trade and business cycles in ASEAN
Author: Cortinhas, Carlos
Publisher: Routledge
Journal: Applied Economics
Date Issued: 2007-04
DOI: 10.1080/00036840500461907
Abstract: A new resolve for both increased economic integration and monetary and exchange rate cooperation has started to emerge in the Association of Southeast Asian Nations (ASEAN), especially since the 1997-1998 Asian financial crisis. According to the optimum currency area theory, the degree of trade integration is one of the most important criteria for joining a currency union. The large increase in intra-ASEAN trade in recent years raises the question of whether the ASEAN countries are becoming better prepared to form a currency union. This article sets to test whether the recorded increase in intra-ASEAN trade is leading the ASEAN members to closer economic integration and thus to better satisfy the criteria for a common currency. Two separate models are estimated for that purpose. First, a variation of the model of Frankel and Rose (1997) was estimated for the ASEAN members. Next, a new panel data methodology was conducted. The results with our own model were very significant and robust when four of the ASEAN5 countries were considered, and showed a clear positive correlation between intra-industry trade and business cycle synchronization in ASEAN. This result has important implications for the prospects of the creation of a common currency in the region.
Type: Article
Description: An earlier version of this paper appeared as NIPE Working paper 7/2005; the final published version is available at
Keywords: Intra-Industry TradeBusiness Cycle HarmonizationEconomic IntegrationASEAN
ISSN: 0003684614664283

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