The spillover effect from CJK to ASEAN4 is a direct consequence from Regionalism in CJK and it serves as one of the building blocks for the formation of EAR. As giants of Asia, the growth of Japan, Korea and China will most likely create positive effect to the neighboring countries. Regionally speaking, the growth of North East Asia will boost the East Asian growth as whole, in this sense we might want to exercise its effect to ASEAN countries. To simplify things, this paper limits the effect to ASEAN4 since these countries have the same economic characteristics. This paper employs static panel data model for this purpose. The panel data is analyzed annually from 1989 to 2007 which consist of ASEAN 4’s Export, Import, Consumption, Investment, Government expenditure, GDP, and GDP of Japan, China, Korea. The data is taken from WDI online database. The following sections provide the analysis.

The idea is to run the models in order to have a consistent estimator for the в coefficients, and the model (fixed or random) choice depends on the hypothesis assumed for the relationship between the error-term (eit ) and the regressors (x it ). The static panel data analysis developed in the empirical section of the paper was based on two basic panel models, the fixed (FE) and the random (RE) effect models. Since the time periods exceed the individual observations (Indonesia, Malaysia, Thailand, Philippines) therefore FE is considered as the most appropriate method.

Equation 17 describes the effects of ASEAN 4 consumption (Ct), investment (It), government expenditure (Gt), export growth (Xt) and the North East Asian GDP growth (JGDPt, CGDPt, KGDPt) on ASEAN4 GDP growth (Yt). From the model, it is clear that consumption growth, investment growth and export growth have their own determinants that simultaneously form the structural equation. Consumption growth (Ct) is formed by last year’s consumption growth (Ct-i), and the present GDP growth (Yt), Investment (It) on the other hand is influenced by the interest rate (rt) and the GDP growth (Ct). It is also expected that exchange rate (EXt), consumption growth (Ct) and trading partners economic growth (JGDPt, CGDPt, KGDPt) have some influences on export growth (Xt) for ASEAN 4.

From the structural equation, we can divide the variables into two, endogenous and predetermined (exogenous). The first one is treated as stochastic while the latter as non stochastic. To see which simultaneous model that can satisfies the need, we have to address the identification process.

Based form the above criteria, table 2 summarize the order condition from the system: For the case of over identified, we might want to employ two stage least squares (2SLS) approach as an elegant way to deal with such problem. 2SLS regression analysis, as suggested by Angrist and Imbens.

From stage one we get Y, C, I, X as the fitted values with which we can run for the second stage. In stage two, these fitted values are then plugged in to the main equation. The last step is to run least squares on each of the above equations to get 2SLS estimation as described in table 6.

**Table 2. Order condition**

No | Equation | Criteria | Conclusion |

1 | Yt | 6 > 2 | Over Identified |

2 | Ct | 9 > 1 | Over Identified |

3 | It | 9 > 1 | Over Identified |

4 | Xt | 6 > 1 | Over Identified |

**Table 3. Cointegration Parameters**

Dependent Variables | GDP (Japan) | GDP (China) | GDP (Korea) |

Independent Variables | |||

Export to Japan | na | Stationer | Stationer |

Export to China | Stationer | na | Stationer |

Export to Korea | Stationer | Stationer | na |

**Table 4. Equilibrium Errors**

Dependent Variables | GDP (Japan) | GDP (China) | GDP (Korea) |

Independent Variables | |||

Equilibrium error for Export to Japan | na | –1.0 9 | -0.23 |

Equilibrium error for Export to China | -0.18 |
na | 0.48 |

Equilibrium error for Export to Korea | 0.017773 | -1.33 |
na |

**Table 5. Cointegration Parameters**

Dependent Variables | GDP (Japan) | GDP (China) | GDP (Korea) |

Independent Variables | |||

Equilibrium error for Openness to Japan | na | -1.23 |
1 31 |

Equilibrium error for Openness to China | -1.15 |
na | 0 97 |

Equilibrium error for Openness to Korea | 0 72 |
124 |
na |

**Table 6. Japan-ASEAN4 relation**

Dependent Variable: LOG(GDPCAP(ASEAN4)) | |

Independent Variables | Coefficient |

IIT Japan-ASEAN4 | 2.383511*** |

TCI Japan-ASEAN4 | 0.019909*** |

Spillover Effect (Japan-ASEAN4) | 3.461189*** |

TAX | -0.256858*** |

R-squared 0.919931 |