International trade and regional income convergence: the ASEAN-5 evidence

This paper intends to show that that multilateralism and regionalism are complementary and that regional income convergence is likely with the like-minded and committed regionalism that often has links geographically and culturally. In this direction this paper examines the association between international trade, income per capita, regional income convergence in ASEAN-5 by applying the LP (Lumsdaine and Papell, 1997) approach, which allows two endogenous structural breaks. The paper further explores the causal relationships among the above variables by using Granger causality tests. We used intra-ASEAN-5’s (of the 5 founding counties) historical data by isolating the following different historical policy interventions: the introduction of Preferential Trade Agreement (PTA) in 1977 (regionalism), the unilateral liberalisation following the severe recession of the mid-1980s (non-discriminatory multilateralism), the ASEAN Free Trade Area (AFTA) formation (regionalism) in 1992 and ASEAN and more Regional Trade Agreements such as ASEAN plus China plus Korea plus Japan; India plus Malaysia; Thailand plus United States.