The Implications of ASEAN FreeTrade Area (AFTA) on Agricultural Trade (A recursive dynamic General Equilibrium Model)

Abstract

The establishment of the AFTA raised concerns related to the inclusion of raw agricultural products into the agreement. This agreement would have negative impacts on welfare of thousand small farmers. In addition the impact of the agreement on enhancing trade in the region was questioned due to the fact that intra- trade among ASEAN countries remains relatively low, ranging from 18% to 22% of total ASEAN trade, similarity in factor endowments, and wide income disparity. Therefore, with the aid of a recursive dynamic general equilibrium model, this study investigates the impacts of ASEAN free trade area (AFTA) on agricultural trade in the ASEAN members. APEC scenario is also included in order to assess whether ASEAN members would benefit from wider trade liberalisation. Results reveal that despite a decline in some of agricultural output it seems that AFTA would not have a significant impact of farmer's welfare. Concerning rice farmers in Indonesia, Malaysia and the Philippines, rice output in the period 2004-2010 would decline very marginally. In addition, wider trade liberalisation would result in larger economic benefit rather than limited regions involved.