The Impact of ASEAN-India Free Trade Agreement (AIFTA) on Indonesias Economy
SULISTYOWATI, ARI (Adv.: Jinhwan Oh), Jinhwan Oh
This paper is aimed to predict the impact of ASEAN-India Free Trade Agreement (AIFTA) on Indonesias economy using the gravity model. The empirical results show the expected sign of the variables and demonstrate a high goodness of fit which means that the model is suitable to analyze the impact of AIFTA on IndonesiaÂ’s trade activities. The results indicates the economic size of a country and trade distance has become major factors in determining trade activities in the AIFTA economies. While per capita GDP only matters as a determinant factor of export performance which explains that goods being traded are necessity goods. Moreover, further analysis is conducted using the gravity model to calculate trade potential between Indonesia and other AIFTA member countries. The result, surprisingly, shows that export and import values between Indonesia and India has exceeded its potential trade, therefore, in the long run AIFTA will have a little impact on Indonesias trade activities. Moreover, In order to maximize the benefits of AIFTA, Indonesia needs to explore more in the investment and trade in services which are also covered in the agreement. Therefore, further research is needed to estimate the benefits of AIFTA on Indonesias economy. Moreover, since its trade with India has been sufficient enough, Indonesia needs to shift its targets to the other economies. And this decision needs further research to examine which countries that have potential trade with Indonesia so that in the future the implementation of an FTA may increase Indonesias trade.
Kata Kunci : impact of ASEAN-India Free Trade Agreement (AIFTA) on Indonesia, trade distance , AIFTA Economies, on Indonesias trade activities
