International Economics - Term Paper Example

s and components which after being produced in ASEAN nations went to labor intensive countries for assembly and then final products reached the markets in Europe, America and Japan. This trade type started in IT products and expanded to other items too. Although ASEAN nations were integrating with the global economy, their intra regional integration was incomplete and was stagnating. In the past two decades the overall trade of ASEAN nations increased by 11% on annual note but intra regional export increased from 19% to 23% in the period 2000-2008.

(Hanouz & Geiger,2010). In January 1992, the ASEAN nations signed ASEAN Free Trade Area (AFTA) for deeper economic integration which was to be obtained within fifteen years and it will lead to extensive liberalization in trade. The objective of AFTA was to increase regional trade among ASEAN nations and thus achieving economic independence from the world market (Ahlstrom & Stalros, 2005). As the theory goes, removal of intra regional tariff and non tariff barriers will lead to efficiency and as market size will increase investors will enjoy economies of scale.

Here we will discuss about the role of AFTA in describing the pattern of trade in ASEAN nations. As per Balasaa, four different stages of economic integration can be given that are Free Trade Area (FTA), then a Customs Union (CU), a Common Market (CM) and at last a Economic Union (EU). Preferential Trade Arrangements(PTA) encompass lower tariff rates for member nations as compared to non members while a FTA is an regional integration which is formed by imposition of zero tariffs on trade among the member nations of FTA without any change of tariff on imports from non member nations.

The traditional economic integration theories explain about the gains from trade and these are static analysis of economic integration. The first theory on economic integration was given by Viner in 1950. His trade creation effect says that as two countries enter into trade, the