Open-Ended Impact of AFTA on FDI inflows: Evidence from Macro-level data of Indonesia, Malaysia, Thailand and Firm-level data of Indonesia

• Published in: Journal of economic cooperation & development Vol. 36; no. 2; p. 4
• Main Author: Verico, Kiki
• Format: Journal Article
• Language: English
• Published: Ankara Statistical Economic & Social Research & Training Centre for Islamic Countries 01.06.2015
• Subjects: Cooperation; Economic models; Economic reform; Favoritism; Food security; Food supply; Foreign direct investment; Foreign investment; Foreign trade zones; Free trade; Generalized method of moments; Governmental reform; Hypotheses; Impact analysis; Indonesia; Liberalization; Macroeconomics; Malaysia; Manufacturing; Regionalism; Studies; Tariffs; Thailand; Trade agreements; Trade liberalization; Southeast Asia; Malaysia; Thailand; Indonesia
• ISSN: 1308-7800

This study attempts to observe the ASEAN economic integration progress based on the impact of ASEAN Free Trade Area (AFTA) on FDI inflows of both multi-country (Indonesia, Malaysia and Thailand) with macroeconomy-level data and single country (Indonesia) with micro firm-level data. Macroeconomy level data uses macroeconomy data set with time-dummy variable of 'before and after' the comprehensive implementation of AFTA as the representation of AFTA. Micro firm-level data utilizes Indonesia's manufacturing survey of 25,696 firms under the International Standard of Industrial Classification digit 5 (ISIC-5) with the ASEAN's Common Effective Preferential Tariff (CEPT) of 19,425 tariff rates data as the representation of AFTA. The form of the macro-level data is longitudinal and the form of the micro-level data is cross-sectional. From the multi-country analysis this study finds that AFTA is not effective in attracting FDI inflows while from the single-country analysis it finds the opposite. These findings prove that the impact of AFTA on FDI inflows in ASEAN is open-ended and varies within member states.