Sadhana Srivastava

This paper explores the feasibility of the ASEAN Economic Community (AEC) moving forward to the next step of economic integration, i.e., towards an ASEAN Customs Union (ACU) post-2015. Effectively, the way to progress towards an ACU is by forming it among ASEAN-9 members with Singapore maintaining its existing zero tariffs against non-members, thereby creating a Partial ACU. Using applied general equilibrium modeling exercise based on GTAP, the findings suggest that there are potential net positive welfare gains to be collectively reaped by ASEAN if it moves from an AFTA to a partial ACU post-2015. However, not all ASEAN members will individually gain from such an ACU and members may need to devise a feasible mechanism wherein some member country welfare losses in an ACU can be compensated by the members who gain. The paper argues that in spite of political economy challenges due to ASEAN’s unique characteristics and diversity in the levels of economic development among members, such a Partial ACU could be considered by ASEAN leaders due to its strategic imperatives.

This paper undertakes an analysis of bilateral trade linkages between Australia and Thailand over 1990 to 2011, analysing changes in trade competitiveness, and possible role played by the Thailand-Australia Free Trade Agreement (TAFTA) that came into force in 2005. Trade competitiveness changes are measured by the revealed comparative advantage index (RCAI) at an aggregate and value-added level, as well as a constant market share analysis (CMS) analysis. An export-demand model utilizing interaction effects in presence of the TAFTA is then estimated, hitherto not attempted earlier in the empirical literature on Australia-Thailand trade. The findings of the paper suggest that the Thailand-Australian trade relationship has undergone further adjustment since the establishment of the TAFTA. However, the changes in trade patterns are not necessarily due to TAFTA but more of a long term trend. CMS analysis suggest that Thailand’s export competitiveness significantly contributed to the remarkable growth of exports to Australia experienced over the period, and the strongest trade link between the two countries has been the export of automotive vehicles from Thailand to Australia. However, value-added RCAI reveals that Thailand’s domestic industry have been contributing to its exports to a much lesser extent than as actually observed in its gross exports, and this reflects the increasing role of foreign firms and imported inputs in Thailand’s machinery and transport equipment sector. The export demand model therefore finds a significant positive impact of the TAFTA only on Australian exports to Thailand, but not vice-versa. The observed statistically insignificant impact of the TAFTA on Thai exports to Australia could be due to the limited impact of the TAFTA on trade barriers in Australia, as Thai exporters already enjoyed low tariffs prior to implementation of the TAFTA. The insignificant income effect observed in presence of TAFTA confirms that the TAFTA agreement had no impact on Thailand’s demand for Australian exports even while the Australian economy was growing. The results imply that Australia and Thailand’s membership with the same country in three different FTAs (bilateral, regional and cross-regional) could throw up additional challenges of utilization of these agreements for actual business purposes in the near future.

Export-oriented FDI is increasingly being perceived as an instrumental tool to strengthen country's export-competitiveness in developing countries. The theoretical literature suggests that both FDI and trade can be substitutive or complementary to each other depending on the nature of investment, industry-mix and host country's characteristics. In this context, the experience of the Indian economy is particularly instructive. Although some empirical studies have supported the view that FDI inflows in the Indian economy have not been export-oriented, it is important to note that none of these have studied the impact of FDI inflows on service exports, in spite of service sector emerging as a key driver of India's export growth. This paper examines the causal relationship between FDI inflows and service exports in the Indian economy during the post liberalization period since 1991. It uses a multivariate VAR framework for the analysis. The empirical results confirm the presence of short-run unidirectional Granger causality from FDI to services exports in the Indian economy.

With the advent of globalization, developing countries, particularly those in Asia, have been witnessing a massive surge of FDI inflows during the past two decades. Even though India has been a latecomer to the FDI scene compared to other East Asian countries, its significant market potential and a liberalized policy regime has sustained its attraction as a favourable destination for foreign investors. This article aims to examine the impact of inward FDI on the Indian economy, particularly after a decade of economic reforms, and analyzes the challenges to position itself favourably in the global competition for FDI. In this context, the article further investigates the likely impact on FDI inflows to India as a result of increasing competition from another major emerging market economy, i.e., China, in the wake of its accession to the WTO. The article provides the major policy implications from this analysis, besides drawing attention on the complexities in interpreting FDI data in India.