Japan's New Trade Policy:Good or Bad for ASEAN?

Abstract

Because Japan is a primary investor and trading partner of all the troubled economies, in the midst of the crisis, Japan was called in to help the crisis-stricken countries by opening its market to cheaper imports from South East Asia. The article analyses the opening to trade of the Japanese economy with the help of a gravity equation on panel data using a Hausman-Taylor estimator. We show that there is no certainty that such a role, that is the opening of Japan, will have positive effects for the ASEAN countries, although no detrimental effects are expected. In the worst case scenario, this move and its impact on ASEAN countries would have neutral effect. This new Japanese policy, if applicable, appears to be not enough to (1) help ASEAN countries emerge from the financial crisis and (2) enable Japan to play the role it could and/or should in the region. Although many look at this solution – Japan opening its national market -- as the only one, on the contrary, Japanese help has been different and has proved to be very crucial to the ASEAN countries in need. In fact, the case of Malaysia is a good example of how Japan can help to foster the economy. Their experience shows that, next to trade ties, a greater emphasis can be put on a technical and/or other type of co-operation. Within this framework, Japan has helped Malaysia to recover faster from the crisis, without the former having to open wider its market to the latter. However, Japan is also driven by its own interests. Thus, if it wants to play a leading role in furthering ASEAN integration, especially in economic aspects, it will have to consider, soon or later, opening up its market to appear more reliable to its neighbours.Asian crisis – Hausman-Taylor – FDI, Gravity equation, Japan – ASEAN – Malaysia