Indonesia has several free trade agreements with trading partners that aimed to eliminate tariff and non tariff trade barriers. One of the free trade agreements is ASEAN-Korea FTA. Trade agreement in goods in ASEAN-Korea FTA was agreed since 2007 and now it is entering the implementation phase. The objective of this research is to determine whether the ASEAN-Korea FTA would increase the trade flows between Indonesia and ASEAN-Korea’ countries by analyzing the impact of regional integration on trade creation and trade diversion. This research is utilized balance panel data including 13 countries from 1998-2012. The empirical result shows that all Indonesia's trading sectors experienced decline because of trade diversion and trade creation does not occur. Indonesia's import trading with the non-member countries of ASEAN-Korea is 68% lower than the existing trading.
Key word: trade creation, trade diversion, free trade agreement, trade in goods
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