The Impact of Preferential Trade Agreements on Trade in Indonesia

We focus on the question whether signing preferential trade agreements was a solution to improve the balance of trade, specifically applied to the case of Indonesia’s trade, a member of the Association of Southeast Asian Nations (ASEAN), with forty-two other countries over 1989-2019. The framework of this study uses the gravity model of bilateral trade. The Poisson pseudo-maximum likelihood econometric technique is utilized to run the analysis. This research estimates negative effects of some of the preferential agreements on both the aggregate flows of trade and their disaggregation by nine product groups. The analysis suggests that partial scope agreements, and collaboration with the WTO member countries were beneficial form of integration for Indonesia. The Indonesian exports increased due to the countries with a higher level of internet penetration. The analysis disaggregated by products generates similar results. Pursuit of strategies based on comparative advantage could improve Indonesia’s trade balance within the ASEAN-Plus-One and ASEAN free trade area (AFTA) partnerships.