Effects of ASEAN-India Free Trade Agreement on agricultural trade: The gravity model approach

Abstract

This paper analyses the trade creation and trade diversion effect of ASEAN-India Free Trade Agreement (AIFTA) on agricultural trade among the member countries. Data on 50 countries with five major FTAs for the period 2005–2014 were used. Gravity model by ordinary least square and Poisson Pseudo-Maximum Likelihood (PPML) methods was estimated. The PPML method corrects the problem of zero trade and heteroscedasticity in the regression model. Analysis shows a pure trade creation effect of AIFTA, MERCOSUR, and EU-15 in the time fixed effect model. Under the time and country fixed effect model, AIFTA, SAPTA, and NAFTA have stronger trade creation effect than trade diversion effect. These results suggest that agricultural sector can be pushed for further trade liberalisation in the FTAs.