Regional Borders and Trade in Asia

Woong Lee, Chankwon Bae
JEL codes: 
KIEP Working Paper 13-03

This paper investigates the effect of regional borders on trade in Asia. The regional
borders define the three regions of Asia: South, Southeast, and East Asia.
Regional trade indicates the flows of trade within a region, whereas regional border
trade means trade across regions. A gravity model is augmented with the region
dummies to estimate the regional border effects that capture any and all
time-invariant factors promoting or impeding regional trade. The main finding is
that regional border effects are asymmetric on the three regions in Asia. There is
a large and significant regional border effect on South Asia, small on Southeast
Asia, and negligibly negative on East Asia. The significant and positive regional
border effect in South Asia suggests that countries share intrinsic factors facilitating
trade between the countries in this region. Although the regional border effect
of Southeast Asia is positive, its magnitude shows little difference between its
regional trade and regional border trade. Finally, the estimate on East Asia presents
a completely different picture from the actual data. It implies that there exist
some factors leading to active regional border trade between East Asia and other
Asian regions.