Assessing the impact of China shocks on intra-ASEAN trade

The member countries of the Association of Southeast Asian Nations (ASEAN) have made significant efforts to increase intra-ASEAN trade by reducing or eliminating tariffs in the region. However, intra-ASEAN trade as a percentage of total trade in the region has not increased significantly; instead, ASEAN countries' imports from China have grown dramatically. In this study, we examine the causal impacts of imports from China on intra-ASEAN trade by estimating gravity-type equations for intra-ASEAN trade at a highly disaggregated product level for the period 2000–2019. In particular, we address the issues of including observations with zero-valued trade and endogeneity in a gravity equation with multiple high-dimensional fixed effects. As a result, we found that imports from China significantly increase, rather than decrease, intra-ASEAN trade.