Does afta create More Trade for Thailand? An Investigation of Some Key Trade Indicators

Countries 

ISIC1 

ISIC2 

ISIC31 

ISIC32 

ISIC33 

ISIC34 

EU-15 

-0.11 

0.18

-0.11

-0.36

-0.10

0.08 

Philippines 

0.49 

0.17

0.45

0.36

0.46

0.38 

Indonesia 

0.52 

0.09

0.43

0.41

0.40

0.34 

Malaysia 

0.44 

0.34

0.42

0.39

0.29

0.45 

Singapore 

0.41 

0.26

0.40

0.36

0.24

0.30 

USA 

-0.04 

0.05

0.03

0.04

-0.13

-0.00 

China 

0.31 

0.02

0.43

0.18

0.66

0.37 

Japan 

0.37 

0.22

0.38

-0.13

0.05

0.11 

Korea 

0.41 

0.25

0.36

0.14

0.60

0.48 

India 

0.04 

0.11

0.06

-0.01

-0.08

0.07 

Number of products 

376 

115

385

864

70

153 

 

Countries 

ISIC35 

ISIC36 

ISIC37 

ISIC38 

ISIC39 

EU-15 

0.01

-0.10

0.22

-0.19

-0.05 

Philippines 

0.38

0.34

0.23

0.30

0.29 

Indonesia 

0.42

0.29

0.38

0.35

0.14 

Malaysia 

0.42

0.49

0.49

0.39

0.19 

Singapore 

0.20

0.24

0.47

0.32

0.10 

USA 

-0.01

-0.03

0.27

-0.06

-0.08 

China 

-0.06

0.13

0.31

0.34

0.20 

Japan 

0.04

0.10

0.28

0.09

-0.16 

Korea 

0.39

0.25

0.45

0.30

0.11 

India 

0.01

-0.13

0.12

0.11

-0.02 

Number of products 

1,005

154

396

1,324

169 

Note: 

ISIC-1 - Agriculture, hunting, forestry, and fishing; ISIC-2 - Mining and quarrying; 

ISIC-3 – Manufacturing. ISIC-31 - Manufacture of Food, Beverages and Tobacco, ISIC-32 - 

Textile, Wearing Apparel and Leather Industries, ISIC-33 - Manufacture of Wood and Wood 

Products, Including Furniture, ISIC-34 - Manufacture of Paper and Paper Products, Printing 

and Publishing, ISIC-35 - Manufacture of Chemicals and Chemical, Petroleum, Coal, Rubber, 

and Plastic Products, ISIC-36 - Manufacture of Non-Metallic Mineral Products, except Prod-

ucts of Petroleum and Coal, ISIC-37 - Basic Metal Industries, ISIC-38 - Manufacture of Fabri-

cated Metal Products, Machinery and Equipment, ISIC-39 - Other Manufacturing Industries. 

Source: 

Author’s own calculation. Calculated from PC-TAS, UN. 

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Does AFTA Create More Trade for Thailand? 

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3.3  Intra-Industry Trade Index  

Besides the degrees of similarity and intensity in countries’ trade with one 

another, another positive feature of this trade structure is the high degree of 

intra-industry trade between the prospective countries and the member 

states. Intra-industry trade refers to the exchange of products belonging to 

the same industry. The term is usually applied to international trade, where 

the same kinds of goods and services are both imported and exported. Intra-

industry trade plays a particularly large role in the trade in manufactured 

goods among countries, which accounts for most of world trade. Over time, 

countries have become increasingly similar in their levels of technology and 

in the availability of capital and skilled labor. Thus, nowadays, there is often 

no clear comparative advantage within an industry due to different endow-

ment and non-identical trade structure. Much of international trade there-

fore takes the form of two-way exchanges within industry, driven in large 

part by economies of scale rather than inter-industry specialization (Krug-

man 1995).  

Intra-industry trade not only increases growth in intra-regional trade 

blocs, but also generates benefits from trade by increasing product variety.

14

 

Intra-industry trade allows countries to benefit from larger markets. By 

engaging in intra-industry trade, a country can simultaneously reduce the 

number of products it produces and increase the variety of goods available 

to domestic consumers.

15

 Therefore, intra-industry trade tends to be preva-

lent between countries that are similar in their factor endowment, such as 

capital-labor ratio, skill levels, and so on. Gains from trade will be large 

when economies of scale are strong and products are highly differentiated.  

To investigate this issue, the third indicator, Intra-Industry Trade (IIT), 

is calculated to reflect the pattern of intra-industry trading between coun-

tries.

16

 This index captures trade between two countries (Thailand and an-

14   Intra-industry trade does not reflect comparative advantage. It is economies of 

scale that keep each country from producing the full range of products for itself. In 

this case, economies of scale can be an independent source for determining trade 

volumes. 

15   To produce fewer varieties, a country can produce each variety of goods on a large 

scale, with higher productivity and lower costs. At the same time, consumers bene-

fit from the increased range of goods on offer.  

16   To be more precise, the standard formula for calculating the importance of intra-

industry trade within a given industry is ITT=

ij

ij

ij

ij

M

X

M

X







1

 where

ij

X

is the value 

of country i’s exports of product j to the market under investigation and 

ij

M

 is the 

value of the country’s imports of product j from the market being examined. If 

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„„„

68

Piriya Pholphirul

„„„

other ASEAN country in this case) within the same product group. A high 

IIT index shows a high trade proportion in that particular product group, 

and a low IIT index implies less trading of that product group and a 

possibility to compete in the third country. Therefore, a high level of IIT 

between two countries suggests an advanced degree of economic integration 

and tends to be positively correlated with participation in a preferential trad-

ing area.  

For simplicity, the products shown within this calculation indicated as a 

two-digit ISIC level illustrate the intra-trade pattern between Thailand and 

ASEAN and East Asia countries. By observing the sectors that contained 

high proportions of export shares between 1997 and 2001, for example, the 

IIT indices are higher for the ASEAN countries than those of East Asia 

countries for items in ISIC-32 (“Textile, Wearing Apparel and Leather 

Industries”) (10.48 per cent), ISIC-35 (“Manufacture of Chemicals and 

Chemical, Petroleum, Coal, Rubber and Plastic Products”) (10.51 per cent), 

and ISIC-38 (“Manufacture of Fabricated Metal Products, Machinery and 

Equipment”) (46.91 per cent). As a previous study conducted by the Thai-

land Development Research Institute (1996) has also shown, we can see that 

the intra-trade patterns between Thailand and AFTA member countries 

indicate a high degree of intra-industry trade that is different from the trade 

pattern of Thailand and other non-AFTA countries, which seems to indicate 

inter

-industry trade. Therefore, this implies that the gains that might come 

from trade creation from AFTA can be caused by an increase in the trade 

volumes in the same industries rather than from trade between different 

industries, which might be predicted from the original trade theory.  

there is no intra-trade within a given industry, we expect a country either to export 

a product or to import it, not both, in which case the IIT index would always equal 

zero. On the other hand, if a country’s exports and imports within an industry are 

equal, we find IIT = 1.  

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Does AFTA Create More Trade for Thailand? 

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Table 5:  

Thailand’s Intra-Industry Trade (IIT) Index, Averaged for 1997 to 

2001