Sogang ilas research series on international affairs Volume 8

S o g a n g H A S R e s e a r c h S e rie s o
In t e r n a t io n a l a f f a ir s
CONTEN TS
ASEAN Free Trade Area: Discriminatory or Not?
A Case Study for V ietnam and Singapore
Yoon H eo
Normative Interpretation of Democratic Peace:
i
Validity and Policy Implications
Jaechun Kim
Assessment of Korea-China Economic Relations and II
Prospects o f Korea-China FTA
Si Joong Kim
Secret Intelligences and State Structures:
The influence o f Secret Intelligences on Transformation K
of the M odem State Structures
Kyu Young L ee & M irko Tcisic
I Editor’s note
It is my great pleasure to present the eighth volume o f the Sogang
HAS Research Series on International Affairs, the journal o f the Institute
of International and Area Studies (T1AS) o f Sogang University.
The HAS o f Sogang University has the goal o f promoting research on
international issues from diverse perspectives, since it was founded in
1997. Publishing this journal is one o f the major activities of the HAS to
achieve the goal.
This volume includes four papers written by scholars o f diverse fields,
including international trade, international relations, and area studies. This
fact is very much consistent with the journal’s policy o f promoting multi
disciplinary international studies. Let me briefly summarize the papers o f
this volume.
The paper by Nguyen K. Doanh and Yoon Heo titled as “ASEAN Free

Trade Area: Discriminatory or Not? A Case Study for Vietnam and
Singapore." This article analyses and compares the economic effects o f
ASEAN Free Trade Area (AFTA) on the trade flows o f Vietnam and
Singapore. Using the gravity model, the study shows a number of robust
empirical findings. First, on the multilateral trade flow's o f Vietnam and
Singapore, the model reveals no trade diversion following integration.
Second, trade flows are not significantly affected immediately following
the signing o f the AFTA agreement. Third, trade distance still remains a
hindrance to trade, indicating that globalization and integration ha \e not
Số hóa bởi Trung tâm Học liệu – ĐH TN
mitigated the relevance of physical distance even though technological
innovations continue to reduce transportation costs. Fourth, cultural
familiarity, as a proxy for linguistic affinity and colonial relationship,
continues to be an important determinant o f bilateral trade flows. Finally,
differences in per capita income among trading partners continue to have
negative impacts on bilateral trade. Efforts to narrow the GDP gaps
among members, improving social infrastructure, and continued domestic
reforms are suggested as remedies for the obstacles to freer flows o f
trade in the region.
The paper by Jaechun Kim is titled as “Normative Interpretation of
Democratic Peace: Validity and Policy Implication.” The normative
explanation o f Democratic Peace stressing elites' role asserts that
peaceful conflict resolution norms and cultures of democratic leaders
prevent conflicts among democracies from mounting to military disputes.
According to this norm-based explanation o f Democratic Peace, leaders in
democracies apply such peaceful conflict resolution norms in their
relations with other democracies, because they try to follow the same
norms o f conflict resolution as have been developed within and
characterize their domestic political processes. This paper claims that the
behavior of democratic leaders during most o f the conflicts with other

democracies was not consistent with the predictions of elites’ norms-
based theories. Throughout the conflicts between the US and other
nascent democracies, it was the latter who appealed more to the peaceful
conflict resolution norm in earnest. It was the latter who could use the
language of democratic norms and culture more comfortably. Since the
end o f the Cold War, quite a few Americans, scholars and policy-makers
Số hóa bởi Trung tâm Học liệu – ĐH TN
alike, have suggested that the export or promotion o f democracy abroad
should become the central focus o f U.S. foreign policy in the post-Cold
War era. Instead o f unilaterally projecting W estem -style democracy, the
American leaders should grant to the foreign counterparts the compromise
o f “embedded democracy.” The Democratic Peace as U.S. foreign policy
would do well to avoid becoming a 21st century American campaign for
"benevolent assimilation.”
The paper by Si Joong Kim is titled as "Assessment of Korea-China
Economic Relations and Prospects of Korea-China FTA.” It investigates
the bilateral economic exchanges between Korea and China, which has
experienced rapid increases since they established diplomatic relations in
1992. The economic exchanges in diverse channels have shown both
quantitative increases and structural changes in this 15 year period,
mainly based on high-growth o f Chinese econom y. Korean econom y has
benefitted from its rapidly-growing exchanges with China, enjoying such
effects as economic growth, price stability, and structural upgrading.
However, its dependence on Chinese econom y increased sharply and
costs for too-rapid structural changes have not been negligible. The claim
o f "industrial hollowing-out" due to China cannot find its solid ground.
The prospects o f Korea-China FTA, which has been recently discussed in
public, are not clear. In theory, the bilateral FTA would have mutually
beneficial effects. In practice, the positive effects for Korea ma\ not be
that large or uncertain depending on the coverage and contents o f the

agreement. Also, the degree of dependency on China would increase
further. However, the negotiation power o f Korea is relatively weak. The
alternatives will be either to establish a low-level traditional FTA in a
Số hóa bởi Trung tâm Học liệu – ĐH TN
short period o f time or to negotiate a high-level broader-ranged I-'TA in
a long-term perspective. The decision will not be easy, but it will have
severe consequences for future Korean economy.
The paper titled as “Secret Intelligence and State Structures” is
coauthored by Kyu Young Lee and Mirko Tasik. It discusses the
influence of secret intelligence on transformation o f modem state
structures. Since Napoleonic Wars the importance o f secret intelligence
had progressively increased. In the beginning, as a part of military
crystallization, its scope and functions were limited and subordinated to
military purposes. However, with the raise of ‘political citizenship’ and
institutionalization o f the state the need for 'social stabilizer’ emerged,
especially in countries with sensitive geopolitical positions and complex
societies. As a result, secret intelligence’s functions and purposes had
diverged from the previous subordination to the military. Hence, both
high military and civilian governing structures, which were in a quite
discordance throughout the 19th and early 20th century, increased their
dependence on secret intelligence. After the October Revolution, secret
intelligence in Bolshevik Russia and later in Stalin’s Soviet Union
evolved from the state stabilizer into the nucleus of the state crystalli
zation. Its scope and functions were broadened, and its distributive power
within the state highly maximized. The secret intelligence under Stalin
started to develop as another form o f military crystallization, altering the
previous concept o f war. This directly had repercussion in US, causing
creation of the resembling ‘new generation’ secret intelligence.
Số hóa bởi Trung tâm Học liệu – ĐH TN
I hope this volume will contribute to the advancement o f international

and area studies in Korea by facilitating academic discussions. Further, I
promise that the IIAS o f Sogang University will make its effort to
increase the number o f articles and improve the qualities of the papers
published in this journal in the next volumes.
December 31. 2008
Si Joong Kim
Director
Institute o f International and Area Studies Sogang University'
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ASEA N Free Trade Area: Discriminatory or Not? A Case Study for Vietnam and Singapore 7
ASEAN Free Trade Area: Discriminatory or Not?
A Case Study for Vietnam and Singapore
Nguyen K. Doanh*
Yoon Heo**
Abstract
This paper analyses and compares the economic effects o f ASEAN
Free Trade A rea (A FTA ) on the trade flo w s o f V ietnam and
Singapore. Using the gravity model, the study shows a number of
robust empirical findings. First, on the multilateral trade flow s o f
Vietnam and Singapore, the model reveals no trade diversion following
integration. Second, trade flows are not significantly affected imme
diately follow ing the signing o f the AFTA agreement. Third, trade
distance still remains a hindrance to trade, indicating that globali
zation and integration have not mitigated the relevance o f physical
distance even though technological innovations continue to reduce
transportation costs. F ourth , cultural fam iliarity, as a proxy for
linguistic affinity and colo n ia l relationship , con tinues to be an
important determinant o f bilateral trade flows. Finally, differences in
per capita income among trading partners continue to have negative
impacts on bilateral trade. Efforts to narrow the GDP gaps among

* Faculty o f Economics. Thainguven University, Vietnam, e-mail: nkdoanh@ yahoo.com
* * Professor, G raduate School o f International Studies. Sogang U niversity, Korea,
e-mail: bury:'« sogang.ac.kr
Số hóa bởi Trung tâm Học liệu – ĐH TN
Xguỵen K Doanh Yoon Heo
members, improving social infrastructure, and continued domestic
reforms are suggested as remedies for the obstacles to freer flow s o f
trade in the region.
Keywords. AFTA. Gravity Model, Trade Diversion. Revealed
Comparative Advantage. Intra-industry Trade, V ietnam.
Singapore.
1. Introduction
Regionalism has becom e one o f the most salient trends in the global
econom y. Even after the launch o f the WTO multilateral trading system,
the number of regional trade agreements (RTAs) has increased rapidly,
expanding their scope and geographical reach across continents. In spite
o f such incremental growth in RTAs, no consensus for the merits of
RTAs has been confirmed yet. Instead, these initiatives have led to
ongoing debate between economists and politicians over whether RTAs
represent 'building blocs' or 'stu m bling blocs'. Economists advocating
RTAs have heralded such agreements as stepping stones towards
worldwide free trade, which benefits individual countries because o f the
cost reduction resulting from intensified competition, econom ies o f scale,
and diversified consumers' choices. In contrast, opponents h a \e argued
that these initiatives will be stumbling blocs, acting primarih to divert
trade from other countries to those countries receiving preferential
treatment.
The 'second-best' nature of liberalizations under RTAs makes it
Số hóa bởi Trung tâm Học liệu – ĐH TN
A S EA N Free Trade Area: Discriminatory or Not? A Case Study for Vietnam and Singapore 9

difficult to determine whether the welfare effects from RTAs will be
positive, even for the members o f the arrangements. In addition,
empirical research has not succeeded in reaching firm conclusions on
whether trade creation outweighs trade diversion. For example.
Karacaovali and Limao (2005) and Limao (2006) found stumbling bloc
effects for the cases o f EU and U.S. respectively. In contrast, Miljkovic
and Paul (2003) found that trade creation occurs in US agricultural
exports to Canada because o f Canada - USA Free Trade Agreement.
Therefore, the effects o f forming a regional integration agreement on the
welfare o f member countries and non-member countries will depend on
individual circumstances and can only be assessed on a case-by-case
basis.
Founded in 1992, ASEAN Free Trade Area (AFTA) aims primarily at
increasing A SEAN's competitive edge as the production base for the
world market. To achieve this goal, the plan involved a lowering of
intra-regionai tariffs, through the Common Effective Preferential Tariff
(CEPT) scheme, to 0-5 percent within a period of 15 years commencing
in 1993. Whether the formation o f AFTA has increased intra-regional
trade in the South East Asian region still remains a point o f controversy
in the literature. Some studies (e.g.,Elliott and Ikemoto, 2004) have
show'n that intra-regional trade in ASEAN was strengthened in the
1990s. In contrast, other studies (e.g Endoh, 2000) have produced
opposite results.
This paper centers on the following research objectives: First, using a
set o f m odels with fixed and random effects considered, it evaluates the
impacts o f accession to AFTA on the multilateral trade flows of
Vietnam and Singapore as a result o f trade creation and trade diversion
among member and non-member countries. Second, it investigates the
Số hóa bởi Trung tâm Học liệu – ĐH TN
10

Nguyen K Doanh / Yoon Heo
issue o f whether or not RTAs can bring about regional economic
opportunities and how these opportunities can be fully exploited. Third,
due to the varying levels of development among member countries the
analysis in this paper aims to offer practical insight into whether or not
high and low-income members are equally affected. Fourth, it examines
other key determinants o f the trade flows o f Vietnam and Singapore and
finds the potential obstacles therein. Finally, the paper derives policy
implications based upon the empirical findings.
This study differs from the previous studies in several aspects. First.
instead o f pooling data across all countries, we estimate a single
equation for Vietnam and Singapore1. This provides us with a better
understanding o f the impacts o f AFTA on the individual countries.
Second, this study presents a set o f models: fixed effects model and
random effects model as discussed in section 2. Third, we decided to
choose Vietnam and Singapore as case studies because Vietnam and
Singapore are in different stages o f development. In addition, although
there are a number o f studies on the effects o f regional trade integration
on its members (Athukorala and Menon. 1997; Brada and Mendez. 1983;
Clausing, 2001; Fukase and Winters. 2003; Heng and Gayathri, 2004;
Tang 2003). little research has focused on comparing the effects of
AFTA on Vietnam and Singapore. Another point o f interest is that
Vietnam's tariff rates before joining AFTA were relatively high, while
those o f Singapore were close to zero. Therefore, it would be interesting
to see how AFTA affects Vietnam, with its initially higher tariff levels,
and Singapore, with its lower tariff levels.
1 Sharm a and Chua (20001 used single gravity equation for Indonesia. M alavsia. the
Philippines. S ingapore and Thailand.
Số hóa bởi Trung tâm Học liệu – ĐH TN
AS E A N Free Trade Area: Discriminatory or Nol? A Case Study for Vietnam and Singapore I I

2. Model
2.1. A nalytical fram ework
To identify the effects of the FTA, it is important to disentangle the
effects o f regional integration from other changes in the economy. A
standard way to control for those effects is to run a gravity model-, and
see whether the estimated relationships change as a consequence o f
implementing the FTA (e.g., Brada and Mendez, 1983 and Carrere,
2006). For estimation purpose, the final regression equation is expressed
in log-linear form as follows:
log7',„ = A + A tog GDP, log GDP,, +/J, log PGDP _ DIF0 *P, log POP. *
fi, log POP,, +A, log DIST„ +fi1BORD,l +/}, LANG,, +&EX _COL„ +fiKAFTA„ +u,„ (3)
Where: T,„ is the total trade volume between country i and
country j at the time t3
GDP,, is Gross Domestic Product of country / at the time /.
GDP,, is Gross Domestic Product of country j at the time /.
POP,, is the population o f country / at the time /.
PGDP DIF„, is the difference in per capita GDP between
country i and country j at the time I (in absolute value),
measured as |PGDPlt - PGDP|,|.
POP,, is the population o f country j at the time r.
2 See Tinbergen ( l% 2 ) and Unnenmann (1966) for their pioneering works.
3 Carrere (2006). Frankel (1993) and O kubo (2006) used the sum o f exports and
im ports as thdependent variabl
Số hóa bởi Trung tâm Học liệu – ĐH TN
12
Nguven K. Doanh / Yoon Heo
DIST,,: Distance between the capital city o f country i and the
capital city of country j.
BORD/, is a dummy variable that equals 1 if both country i
and country j have a common border, and zero otherw ise.

LANG,y is a dummy variable that equals 1 if both country i
and country j have the same language, and zero otherwise.
EX_COL,y is a dummy variable that equals 1 if country / ever
has been colonized by country j or vice versa, and zero
otherwise.
AFTA,y, is a dummy variable that equals 1 if both country i
and country j belong to AFTA at the time t, and zero
otherwise.
u iji ' Residual term
The inclusion o f supply factor of the exporting country (GDP,,) and
demand factor o f the importing country (GDP,,) is justified on the
ground that higher level of exporting country’s GDP indicates higher
level o f production for exports, while higher level o f importing country's
GDP suggests higher level o f demand for imports. Therefore, it is
expected that trade increases with the country size, as measured bv GDP
(Chionis and Liargovas, 2002; See Frankel, 1993), with other factors
kept constant.
Elliott and Ikemoto (2004), Tang (2003), and Roberts (2004)
incorporated per capita G D P difference variable, log (|GDPC, - GDPC ),
in order to test for the Linder Hypothesis. According to Linder
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AS E AN Free Trade Area: Discriminatory or Not? A Case Study for Vietnam and Singapore 13
Hypothesis, countries with similar level o f per capita income tend to
trade more with each other because they have the most similar demand
patterns, and produce similar but differentiated products (Markusen el
a i, 1995). The positive sign fits standard H-O-S framework (e.g.,
Peridy, 2005), whereas a negative sign supports the Linder hypothesis
(e.g., Tang, 2003).
The theoretical justification for population variables (POP,, and POP,,)
is somewhat imprecise. On the one hand, large population could promote

a division o f labor and allow more industries to reach efficient
economies o f scale Thus, opportunities for trade with foreign partners in
a wide variety o f goods will increase, suggesting a positive impact of
population on bilateral trade (See Brada and Mendez, 1983; Oguledo and
Macphee, 1994). On the other hand, populous countries are assumed to
be larger in area and thus endowed with a greater quantity and variety
o f natural resources. The bigger absorption effect o f this domestic
market causes less reliance on international trade transactions, indicating
a negative impact o f population on bilateral trade (See Aitken, 1973;
Bikker, 1987; Endoh, 1999; Endoh, 2000; Linnemann, 1966;
Martinez-Zarzoso and Nowak-Lehmann, 2003; Sapir, 1981). Therefore,
the coefficients for population could be positive or negative, depending
on which effect is dominant, an absorption effect or economies o f scale
effect.
Distance between trading partners (DIST,,) is used as a proxy for
several distance-related variables such transport cost, cost o f time,
"psychic distance"4 or “cultural cost”, and access to relevant market
Số hóa bởi Trung tâm Học liệu – ĐH TN
14
Nguyen K. Doanh Yoon Heo
information (See Linenman, 1966). All o f these factors reflect the cost
o f international transactions o f goods and services and are expected to
affect trade negatively (Al-Mawali, 2005; Clarete el a i. 2003;
Martinez-Zarzoso, 2003; and Bougheas et al., 1999). Therefore, we
expect that the sign o f the coefficient for DIST/j variable is negative.
Since linguistic affinity, ex-colony and commonly sha red borders tend
to reduce cultural distance and therefore encourage bilateral trade, it is
expected that the coefficients for these three dummy variables are
positive (Clarete et a i, 2003; Endoh, 1999; Geraci and Prewo, 1977;
Martinez-Zarzoso, 2003; Peridy, 2005).

Finally, a dummy variable is included to capture the integration effect
o f the FTA. The coefficient on FTA could be negative or positive
depending on a case-by-case basis (see Brada and Mendez, 1983; Baier
and Bergstrand, Ghosh and Yamarik, 2004; 2007; Cyrus, 2004; Yu and
Zietlow, 1995). A positive and significant coefficient on the FTA
dummy could imply that its members have traded with each other more
than the hypothetical level predicted by basic explanatory variables.
In this paper, we employ two techniques, including the fixed effects
model and random effects model. The fixed effects model allows for
country-pair heterogeneity and gives each country-pair its own intercept.
The fixed effects estimates can help us reduce potential specification
errors from omitting important variables. One shortcoming o f this model,
however, is that it does not allow for time-invariant variables to be
included5. Therefore, we include the random effects model in order to
4 Psychic distance indicates the lack o f fam iliarity w ith another c oun try's law s
institutions, and habit (See D rysdale and G am aut. 1982.
Số hóa bởi Trung tâm Học liệu – ĐH TN
AS E A N Free Trade Area: Discriminatory or Not? A Case Study for Vietnam and Singapore 15
incorporate differences between cross-sectional entities by allowing the
intercept to change, as in the fixed effects model, but the amount o f
change is random. The advantage o f random effects model is that both
time-series and cross-sectional variations are used.
Apart from regression analysis, several trade indices are calculated and
incorporated into the present research in order to provide complementary
examination o f intra-ASEAN trade. They include the Trade Intensity
Index, Revealed Comparative Advantage and Intra-industry Trade (See
Appendix 1 for the computable formulas).
2.2. Data
According to Matyas (1997), the traditional cross-section approach is
affected by a severe problem of misspecification. Drawing on his

critique, this paper uses the panel data for 23 countries over the period
o f 16 years, from 1990 through 2005. They include six ASEAN
countries6 (Indonesia, Malaysia, Philippines, Singapore, Thailand and
Vietnam) and 17 non-ASEAN countries7 (Australia, Canada, China.
France, Germany, Hong Kong, India, Italy, Japan, Korea, Netherlands,
Norway, Spain, Sweden, Switzerland, United Kingdom, and USA).
Yearly total trade between two countries is obtained from the IMF
Direction of Trade Statistics-CD ROM. The values of commodity trade
are extracted from TradeMap. Data on GDP, GDP per capita and
5 Examples o f tim e-invariant variables include distance, border, common language,
ex-coloniarelation ship, etc.
b We exclude the countries such as Laos, Cam bodia, M yanmar, and B rune because
the neede datao these economies are insufficient.
7 We choose these countries because they are the m ajor trading partners o f A SEA N.
Số hóa bởi Trung tâm Học liệu – ĐH TN
16
Nguyen K. Doanh Yoon Heo
population are obtained from World Economic Outlook Database-IMF
(WEO). Information regarding language and colonial relationship is
obtained from the Economist Intelligence Unit. The distance between the
two capital cities is available from Indo.com. Finally, data on tariff rates
are extracted from Market A ccess Map.
3. Empirical results
3.1. R egression results
<Table 1> Regression Result for Vietnam
Explanatory- Variable
F ixed Effects Model Random Effects Model
Coefficient t-statistic
Coefficient
z-statistic

Log GDP„
1.717**
(8.61) 1.754**
(8.93)
Log GDP„
0.967**
(2.82)
0.633**
(2.59)
Log P G D P D IF ,,, -0.456*
(-2.05)
-0.250 (-1 39)
Log POP,,
1.695 (0.95)
1.296 (0.77)
Log POP,, - l ằ979
(-1.34)
-0.672
(-1.52)
Log DIST
- -2.166**
(-3.45)
BORD
-
- -0.322
(-0.31)
E X C OL,,
-
-
0.672

(1.29)
AFTA,,,
-0.203*
(-2.43)
-0.239**
(•3.54)
N um ber of O bsenation
352
352
R:
0.807
0.806
F-Statistic
225.69
** Significant at the 0.0 1 level
* Significant at the 0.05 le\-el
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A S EAN Free Trade Area: Discriminatory or Not? A Case Study for Vietnam and Singapore 17
This paper estimates the gravity model for Vietnam and Singapore
respectively over the period o f 16 years, from 1990 through 2005. The
estimations use annual data consisting of 352 country pairs for Vietnam
(Vietnam 's trade with 22 countries for the period from 1990 through
2005) and 352 country pairs for Singapore (Singapore's trade with 22
countries over the period from 1990 through 2005).
G ravity model fo r Vietnam
The estimation results for Vietnam are given in Table I. In the fixed
effects model, the variables log D!ST,„ BORD,,, LANG,, and EX COL,,
are dropped because these variables are time-invariant. In the random
effects model, the variable "LANG,,” is dropped because it causes the
multicolinearity problem8.

As indicated in Table 1, the gravity model fits the data well,
providing explanation for the major variation in bilateral trade. The basic
variables o f gravity equation behave as the model predicts. All estimated
coefficients, except log POP,, and log o f POP,,, are statistically
significant at the 0.01 significance level.
Our main interest is in the impact o f AFTA on intra-bloc trade. The
estimated coefficient on the AFTA dummy variable is negative and
statistically significant. Therefore, membership in AFTA does not seem
to be important per se when other relevant variables are controlled. We
estimate that joining AFTA would lead to a decline in Vietnam's trade
s In fact, Vietnam does not share comm on language with any other countries.
Số hóa bởi Trung tâm Học liệu – ĐH TN
with ASEAN countries by roughly 18.4percent, with other variables
controlledg.
GDP,, turns out to be the most important explanatory variable, not
unexpectedly. The coefficient o f log GDP,, is on the higher side,
suggesting that GDP growth in Vietnam triggers and accelerates the
expansion o f trade. The estimated coefficient o f GDP/, is also positive
and statistically significant, indicating that the larger GDP o f the trading
partner is correlated with increased trade with Vietnam. In the
estimation, when Vietnam has an increase in GDP by 100 percent,
Vietnam’s trade will increase by 172 percent, while an increase in the
trading partner’s GDP by 100 percent would lead to an increase in trade
with Vietnam by 97 percent.
The coefficient on per capita GDP difference is negative and
statistically significant. This indicates that countries with similar level of
income tend to trade more with each other. It is estimated if the
difference in per capita income between Vietnam and its trading partner
increases by 100 percent, the bilateral trade between Vietnam and its
trading partner would decrease by 46 percent.

Although the estimated coefficient o f log POP,, is statistically
insignificant, its negative sign could be indicative that the absorption
effect is greater than the economies-of-scale effect in the trading
partners o f Vietnam10. A large population may indicate a large domestic
18 Nguy en K Doanh / Yoon Heo _____
___________
9 W e will elaborate m ore on this in section 3.2.
10 Since the coefficient is not statistically significant, the result is onlv indicative
and m ust be interpreted with caution.
Số hóa bởi Trung tâm Học liệu – ĐH TN
AS E A N Free Trade Area: Discriminatory or Not? A Case Study for Vietnam and Singapore 19
market and a large resource endowment, so that the bigger absorption
effect o f this domestic market causes less reliance on international trade
transactions with Vietnam. In contrast, positive sign o f log POP,, may
imply that the economies-of-scale effect is greater than the absorption
effect in Vietnam, which allows the advantages o f economies o f scale to
be fully exploited.
In the random effects model, the results are relatively similar to those
o f the fixed effects model. The coefficient on AFTA,>, is also statistically
significant. Again the negative sign indicates that joining AFTA would
lead to a decrease o f 21 percent in bilateral trade between Vietnam and
ASEAN countries.
We also find the traditional positive signs on GDP and colonial
relationship, and negative sign on distance. The estimated coefficient on
the log o f bilateral distance is negative and statistically significant. We
estimate that an increase in bilateral distance by 100 percent leads to a
217 percent decline in bilateral trade. An ex-com mon colonizer could
raise trade 96 percent. In this model, the coefficient on common land
border is negative, but statistically insignificant.
Gravity m odel fo r Singapore

The estimation results for Singapore are presented in Table 2. In
the fixed effects model, the variables log DIST,y, BORD,,. LANG,,
and EX_COL„ are again dropped because these variables are time-
invariant.
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20
Nguyen K Doanh Yoon Heo
<Table 2> Regression Result for Singapore
Explanatory Variable
Fixed Effects M odel Random Effects M odel
Coefficient t-statistic
Coefficient z-statistic
Log GDP,, 0.571** (5.10) 0 ẵ563**
(4.93)
Log GDP,,
1.017** (11.14) 0.934** (10.74)
Log PGDP DIF,,, -0 .00 0
(-0 .0 0 ) 0.0 10
(0.43)
Log POP,,
-0.861* (-2.43) -0.131
(-0.42)
Log POP,,
1.398** (2.58) -0.312
(-1.51)
Log D1ST„
- -
-1.850**
(-4.83)
BORD,,

-
-2.191**
(-2.81)
E X CO L,,
0.930**
(2.81)
LANG,,
- 0.541*
(2 . 12)
AFTA,,
0.106**
(2.74)
0.161**
(4.33)
Observation
352
352
Adjusted R~
0.737
0.726
F-Statistic
151
** Significant at the 0.01 level
* Significant at the 0.05 level
In the fixed effects model, a very high degree of explanation is
achieved. All estimated coefficients, except log PG D PD IF it. are
statistically significant at the 0.01 significance level. All other
coefficients are not statistically significant.
W ith regard to the impact of AFTA on intra-bloc trade, the result is
different from that o f Vietnam. The estimated coefficient on the AFTA

dummy variable is positive and statistically significant. Therefore, a pair
o f countries that joins AFTA would likely experience an increase in
bilateral trade by a roughly 11 percent, with other variables held
constant. A very tentative explanation for this could be that Singapore
moved quickly to establish itself as a trade and investment partner of
Số hóa bởi Trung tâm Học liệu – ĐH TN
A S EAN Free Trade Area: Discriminatory or Not? A Case Study for Vietnam and Singapore 21
these countries once they were included in the AFTA.
The coefficients o f logs GDP,, and GDP,, are positive and statistically
significant. It is estimated that an increase in Singapore’s and the trade
partner’s GDP by 100 percent would lead to an increase in bilateral
trade of 57 and 102 percent respectively. The coefficient o f log POP;, is
positive and statistically significant, indicating a greater economies-of-
scale effect compared with the greater absorption effect in Singapore’s
trading partners. The coefficient on log POP,, is negative and statistically
significant. This might indicate that larger population o f Singapore could
reduce its trade flows with partner countries.
In the random effects model, the results are relatively similar to those
o f the fixed effects model. Again the coefficient on AFTA is positive
and statistically significant. Thus, joining AFTA would increase
Singapore's bilateral trade with ASEAN countries by 17.5 percent. The
coefficients on logs o f GDP,, and GDP,, are positive and statistically
significant. Therefore, an increase in the GDP o f Singapore by 100
percent would raise the bilateral trade between Singapore and its trading
partner by 56 percent, while an increase in the GDP o f the trading
partners would increase bilateral trade by 93 percent.
We also found the traditional negative sign on distance, and positive
signs on common language and ex-colonizer variables. The estimated
coefficient on the log o f bilateral distance is negative and statistically
significant. This indicates that an increase in the distance between

Singapore and its trading partner by 100 percent would indicate a
decrease in bilateral trade by 185 percent. Being ever colonized
colonizer would increase bilateral trade between Singapore and its
Số hóa bởi Trung tâm Học liệu – ĐH TN
Nguyen K. Doanh / Yoon Heo
ex-colonizer by 153 percent. The coefficient on common land border is
inconsistent with the traditional sign.
Although the coefficient o f log PGDP DIF*, is not statistically
significant, its positive sign might indicate that the Singapore's partem
o f trade follow s Heckscher-Ohlin theory. As data indicate, Singapore
tends to trade more with ASEAN countries, whose per capita incomes
are low. Overtime the bilateral trade between Singapore and ASEAN
countries increases while the difference in per capita GDP between
Singapore and ASEAN countries increases. That is a potential reason
why the sign o f the coefficient is in favor o f H-O -S framework.
3.2. Complementary results
Trade Intensity Index
Vietnam and Singapore's propensities to trade with ASEAN, as
measured by the trade intensity index, are given in Table 3-A and 3-B.
Compared with Vietnam, Singapore exhibits larger values of trade
intensity index for virtually all ASEAN countries. The result seems
plausible since trade intensity indices are often high between neighboring
countries, and because Singapore is playing a role as an entrepot. The
dominating impression is in terms o f trend. Between 1990 and 2005.
Singapore's trade intensity with ASEAN was on a slight increase, whereas
Vietnam's trade intensity with ASEAN declined. This trend implies that
the relative importance o f ASEAN as a trading partner to Vietnam has
been declining, while ASEAN has become more important to Singapore.
Số hóa bởi Trung tâm Học liệu – ĐH TN
A SEA N Free Trade Area: Discriminatory or Not? A Case Study for Vietnam and Singapore 23

<Table 3-A > Trade Intensity Index, Vietnam as reporter«
partner 1990 1991
1992 1993
1994 1995
1996
1997
Brunei 0.0 0.0 0.0
0.0
0.0 0.0 0.0 0.0
Cambodia 222.7 146.8
19.1
96.4 62.8
47.4
37.0 33.2
Indonesia 0.7 2.0 1.2
1.9
1.9 2.1 1.2
1.3
Lao PDR 124.2 44.1 85.1
116.5
100.7 81.6 58.8 46.6
Malaysia 0.1 0.4 1.7 0.9 0.9 1.4 1.0 1.1
Myanmar 0.0 0.0 0.0 0.0 0.0 0.0 0ệ2 0.5
Philippines 3.4 0.8 0.1 0.1 0.4
l ế0
1.5
2.1
Singapore 9.0 16.0 12.7 11.0 9.0 7.6 8.8
8ắl
Thailand 1.7 1.8 2.1 2.4 3.0

3.3
2.7
3.5
ASEAN 4.0
6.3 5.3 5.0 4.3
3.9 3.9 3.9
partner
1998 1999 2000
2001 2002 2003 2004 2005
Brunei 0.1 0.1 0.2 0.1 0.1 0.0 0.0 0.0
Cambodia 31.5
17.9 22.2
17.9
20ễ4 24.4 10.9 4.9
Indonesia 8.5 4.3 2.6
2.4
2.6
3.1 2.4
2ằ3
Lao PDR 73.6 154.7
79.4
55.5 47.5 35.5 34.5
30.4
Malaysia
1.7 1.7 1.8 1.9 2.1
2 ■>
2.4
Myanmar 0.4 0.4
0.9 0.7 0.9
l ệ8

2.0
2ẻ0
Philippines 6.8 2.8 2.5
2.1 1.7 1.7 3.4 2.8
Sineapore
4.5 7.0
6.7
7.0 6.0
5.7
5.3 6.0
Thailand 4.2 3.9
3.8 3.5 3.2 3.5 4.0
4.6
ASEAN
4.6 4.4 3.8 3ế5
3.4 3.4
3.5 3.7
Source: The author’s computation based on C OMTR ADE o f UNSD and IMF
Direction o f Trade Statistics.
11 The Trade Inte nsity Index (TII is incorporated into this research in order to
exam ine how strong the trade ties are am ong A SEAN countries over time, and to
see w hether m ajor shifts have occurred. It is com puted as follows:
T IT
TII, = — — —
' T iw / r io, W here i is the country (region)’s total trade with country
(region);, is countrys trade with the work j is the country (region)'s total trade with
the world;«« is the w orld's total trade A value o f Tlj greater than one implying that
country is m ore important for country than it is for the world trade as a whole
Số hóa bởi Trung tâm Học liệu – ĐH TN
24

Nguyen K. Doanh Yoon Heo
<Table 3-B> Trade Intensity Index, Singapore as reporter
partner 1990 1991
1992 1993
1994 /9 9 ĩ
1996
/997
Brunei
10.0
9.5
10.9
8.0 8.4
12.6 11.2
10.8
Cambodia 0.0
0.0
16.5
15.7
13.6 12.5 13.0
9.8
Indonesia 4.6 5ềĩ 4.3 3.8 3.0 2.8 3.2
3.6
Lao PDR
0.0 0.0 0.7 0.9
1.2
2.3 2.1
1.6
M ala\sia
15.4
14.8 13.1 12.0

12.2
10.9 10.5
10.4
M> anmar
11.0 13.8
12.9
10.5
9.9
10.8
11.0
101
Philippines
2.6 2.3 2.3 2.7 2.6
2.6 2.6
3.0
Thailand 5.8 5.4
5.3 4.7 4.7
4.6 4ế7
4.5
Vietnam 0.0 0.0
4.6 7.1
6.4 5.9 4.7
4.5
ASEAN 4.7 4.7
4.3
4.1
4.3 4.1
4.0
3.9
partner

199S
1999
2000 2001
2002 2003 2004
2(H)5
Brunei
15.6
8.8 7.0 6.4
6.9
5.9 5.4
4.5
Cambodia
10.5
8.3 6.9
5.9
5.5
4.3 3.7
3.3
Indonesia 5.7
5.0
5.1 5.0
6ệ2
12.2 11.5
11.2
Lao PDR 1.7
1.9
1.5
1.5
1.5
I I

1.6 1.3
Malaysia
14.1 11.4
11.3
11.9
12.1
11.3
10.9
10.7
Myanmar
10.5
7.3
5.5 5.6
6ễ2
7ễ2
6.2 5.4
Philippines
3.6
3.8 3.4
3.6
3.5
3.6 4.1
4.1
Thailand 5.0
4.8
4.2
4.3
4.5
4.2
4.0 3.9

Vietnam
6.7
4.5 4.9
5.2
4.7
4.3
4.2
4.9
ASEAN
8.2
4.3
4.2 4.4
4.5
5.9
5.6 5.5
So urce: The auth or's computation based on C OM TRA D E of UN SD and IMF
Direction o f Trade Statistics.
Số hóa bởi Trung tâm Học liệu – ĐH TN
A S EA N Free Trade Area: Discriminatory or Not? A Case Study for Vietnam and Singapore 25
Figures 1 and 2 provide overall picture o f Vietnam and Singapore’s trading relations
with A SEAN and with the rest of the world.
F ig u r e I : V ie tn a m ’ s D ire c tio n o f T rad e
g 80000
b 70000
| 60000
jg 50000
| 40000
a 30000
> 200 0 0
■o 10000

E
H 0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
E3 Vietnam's trade with ASEAN ■ Vietnam's trade with the world
Source: Based on IMF Direction o f Trade Statistics and TradeMap
Figure I shows that after joining AFTA in 1996, Vietnam’s trade with
ASEAN countries has increased. However, its trade with the rest o f the
world has increased much faster. This leads to the situation where the
ratio o f Vietnam's trade with ASEAN to its total trade has declined
overtime.
F igu r e 2 : Sing a p ore's Dire c t ion o f Tra de
500000
z .
400000
B
300000
I 200000
.3 100000
0
I W O 1991 199: 1993 1994 199? 19 % 1997 1998 1999 2000 2001 2002 2003 201W 2005
□ S in gapo re's trade w ith ASEA N ■ Singapo re's trade with the world
Source: Based on IMF Direction of Trade Statistics and TradeMap
Số hóa bởi Trung tâm Học liệu – ĐH TN