The Impact of Intra Regional Trade Agreement on FDI Inflows in Southeast Asia: Case of Indonesia, Malaysia and Thailand

This study attempts to analyze the impact of intra regional trade agreement on FDI inflows in Southeast Asia. The agreement is ASEAN Free Trade Area (AFTA). The observed countries are Indonesia, Malaysia and Thailand. These three countries have been selected based on several considerations. Trade indicators of Revealed Comparative Advantage (RCA), Constant Market Share Analysis (CMSA) and Net Export (NX) show these three countries have intra trade advantage in primary products. These indicators are useful to assess how effective AFTA in accommodating her member’s trade advantage products into her priority products list. Furthermore this study attempts to assess the impact of AFTA on FDI inflows as a proxy of its effectiveness on investment. This study adopts econometric model of Panel Data Analysis on both the Static Fixed Effects and Dynamic Panel Data (DPD) Analysis to find the impact of AFTA and other variables to FDI inflows.