China-Japan-Korea (CJK)’s FTA Strategy toward ASEAN Countries

Abstract

As noted in previous chapters, we have concluded that the formation of East Asian regionalism will be the responsibility of the CJK countries. In addition, we have already proven that the CJK and ASEAN are on the trend of merging. We have at least two specific models to serve as the basis for robust conclusion. First, in Chapter 2, the author employed the augmented Dickey-Fuller (ADF) test and the Engle-Granger cointegration test to measure stochastic convergence in terms of trade. The result shows us that the two sub regions, Northeast Asia and Southeast Asia, will eventually converge into one region. Second, in Chapter 4 we saw that the DUMMY VIIT from the random effect method captures the phenomenon of factor price equalization. Trade increases the wage rate in countries where labor is a relatively abundant production factor (ASEAN4), while it lowers the wage rate in countries where capital is abundant (CJK). These factors will eventually lead to a bottom-up regionalization, so-called because the market plays a dominant role in the process. It follows the trade and FDI nexus, which leads to an increased share of intra-regional trade of ASEAN+ 3 over the last decade. The share is now reaching a staggering figure as it almost reaches 60%. If we compare it with the figure in early 1990s, 47%, we can conclude that the countries of East Asia are becoming more interconnected to each other.