The Impacts of Regional Agreements on Intra-Industry Trade
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Universiti Malaysia Sarawak (UNIMAS)
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This study examines the impact of regional trade agreements, particularly the ASEAN Free Trade Area (AFTA) and the Regional Comprehensive Economic Partnership (RCEP), on intra-industry trade (IIT) between Malaysia and Indonesia over the period 1994–2023. Utilizing panel data analysis, the study identifies the key economic factors such as GDP, foreign direct investment (FDI), geographic distance, and trade openness that influence bilateral IIT flows in the manufacturing sector. The empirical analysis incorporates the Grubel-Lloyd index to measure IIT and employs a gravity model framework for estimation. The findings highlight the significant role of regional agreements in reducing trade barriers, enhancing economic integration, and facilitating IIT in both countries. The results suggest that GDP and FDI positively contribute to IIT, while geographic distance poses logistical challenges. The study concludes with policy recommendations for strengthening bilateral economic relations and maximizing the benefits of regional integration.