Growth of Asian Regional Trade and Income Convergence: Evidence from ASEAN+3 Based on Extended Helpman-Krugman Hypothesis and Flexible Modelling Approach

In earlier cross-sectional gravity-theory reports (see for example Frankel and Romer, 1999), empirical modelling evidence lends support to the hypothesis of ‘trade causes growth’. In our time-series study on trade-growth causation for a new Asian regionalism (namely ASEAN+3), the hypothesis was also confirmed (Tran Van Hoa, 2002c). A number of benchmark models have also been proposed to find out what causes trade (for a brief survey, see Baier and Bergstrand, 2001), but specific research on income convergence and Asian or more specifically ASEAN+3 trade is still scarce or even non-existent. The paper focuses on studying the growth of ASEAN+3 bilateral trade in the volatile period 1968-2000 and, using an extended Helpman-Krugman (1985) function-free model and World Bank national account and CHELEM trade data, tests the impact of convergence on this trade. Surprisingly, this convergence is found plausible but statistically insignificant and ASEAN output growth and crises are principal determinants of the trade flows between the East Asia 3 and ASEAN.