There are two striking conventional wisdoms about the status of regional trading blocs in East Asia. The first is that the only formal regional arrangement in the area, ASEAN, does not in fact function as an economic bloc. Trade among the members is thought to be very low. The second is that East Asia taken as a whole does function as a trading and investment bloc, under Japanese direction, and increasingly so over time. This despite the absence of any formal preferential trading area among these countries. This characterization of East Asian trading patterns is not entirely correct. ; Trade among the ASEAN economies is in fact higher than one would expect, based on their income levels and other important determinants of bilateral trade. The same is true of trade within East Asia more broadly (or trade within an ASEAN-Australia-New Zealand grouping). To the extent that this regional concentration of trade is attributed to formal or informal regional trading arrangements, they appear to be trade-creating, not trade-diverting. ; The gravity model of bilateral trade used in this study implies that trade among Southeast Asian countries will in the future continue to grow more rapidly than incomes. Our model thereby implies that trade among ASEAN countries will grow at about 12 percent a year faster than the world average, which is 16 percent. If plans for AFTA are realized in a meaningful way, than intra-ASEAN trade should increase much more rapidly.
