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Does the quality of political institutions affect intra-industry trade within trade blocs? The ASEAN perspective

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  • Nusrate Aziz
  • Belayet Hossain
  • Irfan Mowlah

Abstract

There has been a renewed resolve for deeper integration and cooperation within ASEAN. Intra-industry trade (IIT) is often viewed as a way of achieving economic as well as political integration. This article tests for the effect that political regime and governance may have on the intensity of IIT. We particularly examine if quality of political institutions which includes corruption and democracy indices as well as economic factors comprising corporate tax rate, regional FDI flow, flexibility of exchange rate regime, size of the market, economic distance affect the intensity of horizontal and vertical IIT. The study finds that control of corruption and good governance both increase the vertical IIT but not the horizontal IIT. The study further finds that intra-economy FDI flow, stable exchange rate regime, market size and proximity positively affect IIT within the trade bloc. However the negative effect of corporate tax rate suggests that if countries were to coordinate their tax policies, they could avoid harmful tax competition and promote IIT across their borders. The findings regarding the effect those economic and political factors have on the intensity of IIT certainly warrants the attention of policy makers and researchers alike.

Suggested Citation

  • Nusrate Aziz & Belayet Hossain & Irfan Mowlah, 2018. "Does the quality of political institutions affect intra-industry trade within trade blocs? The ASEAN perspective," Applied Economics, Taylor & Francis Journals, vol. 50(33), pages 3560-3574, July.
  • Handle: RePEc:taf:applec:v:50:y:2018:i:33:p:3560-3574
    DOI: 10.1080/00036846.2018.1430336
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    Cited by:

    1. Abdulkareem Alhassan & Cem Payaslioğlu, 2024. "Trade Diversion and Creation Effect of Free Trade Agreements in ASEAN: Do Institutions Matter?," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(1), pages 917-935, March.
    2. Rima Rubčinskaitė & Laimutė Urbšienė, 2024. "What matters for the economic synchronization of the Baltic States," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 51(3), pages 645-678, August.

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