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China-Japan-Korea (CJK)'s FTA Strategy towards ASEAN Countries: A Game Theoretical Approach

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  • Fithra Faisal Hastiadi

    (Waseda University and University of Indonesia)

Abstract

This paper analyzes the FTA strategies of China, Japan and Korea (CJK) toward ASEAN countries using a three-player game. It explores the implications of China, Japan, and/or Korea participating in an FTA with ASEAN and the corresponding rewards in a payoff matrix. The Nash equilibrium occurs when China, Korea and Japan all choose to participate in an FTA with ASEAN. Dominant strategies and response functions for each country are analyzed using Error Correction Mechanism (ECM) and Vector Auto Regression (VAR) models. The paper also finds that Japan’s action to create FTA will be the most effective for regional settings. Although the game analysis is backward looking, it is a useful benchmark for understanding future FTA policies in East Asia.

Suggested Citation

  • Fithra Faisal Hastiadi, 2012. "China-Japan-Korea (CJK)'s FTA Strategy towards ASEAN Countries: A Game Theoretical Approach," Working Papers in Economics and Business 201210, Faculty of Economics and Business, University of Indonesia, revised Oct 2012.
    • Handle: RePEc:lpe:wpecbs:201210
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    FTA; Game Theory; Error Correction Mechanism; Vector Auto Regressive;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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