ASEAN Free Trade Area and Within-Country Inequality

In this paper, we focus on spatial effects of trade liberalization under Association of Southeast Asian Nation (ASEAN)’s regional economic integration. Using geo-coded population data and nighttime satellite imagery, we estimate the impact of intra-regional trade within ASEAN Free Trade Area (AFTA) on economic welfare at the municipality level of each country under the framework of spatial autoregressive model. The result suggests that active regional trade under the AFTA increases the overall regional income level. Lower transportation costs, computed from the length of roads and the distance to seaports, are also important factors contributing to an increase in the regional income level. Further, although an increase in regional trade increases regional income inequality in some members, the relationship is ambiguous in other members. This result implies that regional economic integration should be complemented by supplementary policy measures to reduce the regional income inequality resulting from varying initial geographical conditions.