Cross-country linkages between ASEAN and non-ASEAN-RCEP member states: a global VAR analysis

The complex global value chains underlying the Regional Comprehensive Economic Partnership (RCEP) raise an important question on the macroeconomic (output, inflation, exchange rate, and interest rate) exposure of ASEAN to output shocks in the non-ASEAN-RCEP members, within the context of expanded regional architecture. This paper uses quarterly data from 1995 to 2018 to estimate a global vector autoregressive (GVAR) model, specially constructed for the RCEP. The GVAR model disentangles the effects and spillovers from output shocks originating in the non-ASEAN-RCEP through various trade channels – direct and indirect, and total exports and foreign value-added (FVA). The model also quantifies the impact of global (the price of oil and materials) shocks on ASEAN through trade linkages. The output shocks in the non-ASEAN-RCEP have persistent effects on output growth in ASEAN when transmitted through the intermediary FVA channel than the export channel. The FVA channel is also important for propagating global shocks in the form of oil and material prices. The findings confirm that output in ASEAN is also highly exposed to output shocks originating in the non-ASEAN-RCEP economies. The FVA trade channel is vital for explaining the spillovers from the regional output shocks and global price shocks.