Impact of ASEAN- India Free Trade Agreement (AIFTA) on Palm Oil Trade

Aims: To analyse the trade creation and trade diversion effect of the ASEAN-India Free Trade Agreement (AIFTA) on palm oil trade among the member countries.

Data and Methodology: Data on palm oil exports of major Association of South East Asian countries (ASEAN) member countries such as Indonesia (64.10%), Malaysia (31.52%), Thailand (2.18%), Singapore (1.95%) and Philippines (0.25%) were collected for the period of 21 years (2000–2020) and used for the analysis. The Gravity model by Ordinary Least Square (OLS) and Poisson Pseudo-Maximum Likelihood (PPML) methods were estimated with the panel data.

Results: As expected gravity model variables the distance had a negative impact on the palm oil trade between India and ASEAN member countries. The tariff rates and export prices had a negative impact on the palm oil trade whereas; the population of ASEAN members (exporters), GDP of ASEAN members and exchange rate were insignificant. The AIFTA had a positive and significant effect on the palm oil trade from ASEAN member countries to India which denoted the trade creation effect between ASEAN members and India.

Conclusion: The analysis showed a pure trade creation effect of AIFTA in the time and country fixed effect model. The results suggested that the palm oil trade could be pushed for further trade liberalisation in the AIFTA.