Abstract
Standard trade theory suggests that Free Trade Agreements (FTAs) could disrupt trade between members and non-members. Using novel empirical approaches researches can estimate trade creation and trade diversion effects. However, the trade diversion effects of FTAs have not been thoroughly examined empirically.
In this paper we estimate the effects of free trade agreements on trade flows in East Asia (EA). Based on international trade statistics for nine countries (China, Indonesia, Japan, Republic of Korea, Malaysia, Philippines, Singapore, Thailand, Taiwan) for the period 1994–2012 on 13 sectors and data on existing free trade agreements (FTAs) using the Bayer and Bergstrand model and the quasi-maximal likelihood method of Poisson, the effects of FTA on trade flows of EA countries are estimated. The results of the model evaluation showed that the FTAs have a positive and statistically significant effect on the volume of bilateral trade between East Asian countries. In general, the countries that concluded FTAs increased bilateral export by 6.7%. FTAs had an impact on bilateral trade and at the sectoral level, but it was not possible to set a clear time trend. For such enlarged industries as textile, electrical machinery, the production of household electrical appliances, following a significant initial effect, a decline was observed. For such industries as food production, oil and coal industry, production of stone, clay, glass and concrete products, ferrous and non-ferrous metallurgy, the initial effect of FTA was quite small or nonexistent, but increased with time. Values of the estimated coefficients for a dummy variable with a 6-year time lag indicate that for most industries, the effect of FTA remains significant over time. Exceptions were the sectors of the production of household electrical appliances and precision engineering, for which the value of the coefficient is positive, but not great, and also the industry of the production of electric machines, for which the value of the coefficient is negative. This is due to the fact that the effect of FTA on trade volumes for some or most of the goods in these industries was short-lived.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
References
Viner, J.: The Customs Union Issue. Carnegie Endowment for International Peace, New York (1950)
Balassa, B.: The Theory of Economic Integration. Richard D. Irwin, Homewood (1961)
Okabe, M.: Impact of free trade agreements on trade in East Asia. ERIA Discussion Paper (2015)
Tinbergen, J.M.: Shaping the World Economy; Suggestions for an International Economic Policy. The Twentieth Century Fund, New York (1962)
Poyhonen, P.: A tentative model for the volume of trade between countries. Weltwirtschaftliches Archiv 90(1), 93–99 (1963)
Aitken, N.: The effect of the EEC and EFTA on European trade: a temporal cross-section analysis. Am. Econ. Rev. 63(5), 881–892 (1973)
Brada, J.C., Mendez, J.A.: Regional economic integration and the volume of intra-regional trade: a comparison of developed and the developing country experience. KYKLOS 36(4), 589–603 (1983)
Baier, S.L., Bergstrand, J.H.: Do free trade agreements actually increase members’ international trade? J. Int. Econ. 71(1), 72–95 (2007)
Carrère, C.: Revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model. Eur. Econ. Rev. 50(2), 223–247 (2006)
Santos Silva, J., Tenreyro, S.: The log of gravity. Rev. Econ. Stat. 88, 641–658 (2006)
Helpman, E., Melitz, M.J., Rubinstein, Y.: Estimating trade flow: trading partners and trading volumes. Quart. J. Econ. 123(2), 441–487 (2008)
Anderson, J.E.: A theoretical foundation for the gravity equation. Am. Econ. Rev. 69(1), 106–116 (1979)
Anderson, J.E., van Wincoop, E.: Gravity with gravitas: a solution to the border puzzle. Am. Econ. Rev. 93(1), 170–192 (2003)
Melitz, M.J.: The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica 71(6), 1695–1725 (2003)
Frankel, J.A.: Regional Trading Blocs. Institute for International Economics, Washington DC (1997)
DeRosa, D.A.: Regional Trading Arrangements among Developing Countries: The ASEAN Example. International Food Policy Research Institute, Research Report No.103, Washington, D.C. (1995)
Frankel, J.A., Wei, S.J.: ASEAN in a Regional Perspective. Center for International and Development Economic Research Working Paper No. C96-074 (1996)
Endoh, M.: The transition of post-war Asia-Pacific trade relations. J. Asian Econ. 10, 571–589 (1999)
Solaga, I., Winters, L.A.: Regionalism in the nineties: what effect on trade? North Am. J. Econ. Financ. 12(1), 1–29 (2001)
Hausman, J.A., Taylor, W.E.: Panel data and unobservable individual effects. Econometrica 49(6), 1377–1398 (1981)
Elliot, R.J.R., Ikemoto, K.: AFTA and the Asian crisis: help or hindrance to ASEAN intra-regional trade? Asian Econ. J. 1, 1–23 (2004)
Kien, N.T.: Gravity model by panel data approach: an empirical application with implications for the ASEAN free trade area. ASEAN Econ. Bull. 26(3), 266–277 (2009)
Bun, M.J.G., Klaassen, F.J.G.M., Tan, G.K.R.: Free trade areas and intra-regional trade: the case of ASEAN. Singap. Econ. Rev. 54(3), 319–334 (2009)
Manchin, M., Pelkmans-Balaoing, A.O.: Clothes without an emperor: analysis of the preferential tariffs in ASEAN. Centro Studi Luca D’Agliano Development Studies Working Papers No. 223, (January), Centro Studi Luca D’Agliano. Milan (2007)
Okabe, M., Urata, S.: The impact of AFTA on Intra-AFTA Trade. ERIA Discussion Paper (2013)
Estrada, G., Park, D., Park, I., Park, S.: ASEAN’s free trade agreements with the People’s Republic of China, Japan, and the Republic of Korea: a qualitative and quantitative analysis’. ADB Working Paper Series on Regional Economic Integration No. 75, ADB, Manila (2011)
Ando, M.: Impacts of FTAs in East Asia: CGE Simulation Analysis. RIETI Discussion Paper Series 09-E-037 (2009)
Itakura, K.: Impact of liberalization and improved connectivity and facilitation in ASEAN for the ASEAN economic community. ERIA Discussion Paper Series 2013-01 (2013)
Sheng, Y., Tang, H.C., Xu, X.: The impact of ACFTA on People’s Republic of China–ASEAN trade: estimated based on an extended gravity model for component trade. ADB Working Paper Series on Regional Economic Integration No. 99. ADB, Manila (2012)
Bano, S., Takahashi, Y., Scrimgeour, F.: ASEAN-New Zealand trade relations and trade potential: evidence and analysis. J. Econ. Integr. 28(1), 144–182 (2013)
Chandran, B.P.S.: Implications of India-ASEAN FTA on India’s fisheries sector. MPRA Paper No. 38712 (2012)
Ando, M.: Impacts of Japanese FTAs/EPAs: Preliminary Post Evaluation. The International Economy No. 11, pp. 57–83 (2007)
Athukorala, P., Kohpaiboon, A.: Australia-Thailand trade: has the FTA made a difference? Working Papers in Trade and Development No. 2011/12, Australian National University (2011)
Medalla, E.M., Balboa, J.: ASEAN rules of origin: lessons and recommendation for best practice. ERIA Discussion Paper Series 2009-17 (2009)
Cadot, O., de Melo, J., Portugal-Perez, A.: Rules of origin for preferential trading arrangements: implications for the ASEAN free trade area of EU and U.S. experience. World Bank Policy Research Working Paper 4016 (2006)
Carrère, C., de Melo, J.: Are different rules of origin equally costly? Estimates from NAFTA. CEPR Discussion Paper No. 4437 (2004)
Medalla, E.M.: Taking stock of the RoOs in the ASEAN+1 FTAs: toward deepening East Asian Integration. Philippines Institute for Development Studies Discussion Paper No. 2011-36 (2011)
Hayakawa, K., Laksanapanyakul, N.: New measures of FTA liberalization level. IDE Discussion Paper No. 437 (2013)
Hayakawa, K., Laksanapanyakul, N.: Impacts of common rules of origin on FTA utilisation. IDE Discussion Paper No. 429 (2013)
Hayakawa, K.: Impact of diagonal cumulation rule on FTA utilisation: evidence from bilateral and multilateral FTAs between Japan and Thailand. IDE Discussion Paper No. 372 (2012)
Deardorff, A.V., Stern, R.M.: Measurement of non-tariff barriers. OECD Economic Department Working Papers No. 179, OECD Publishing (1997)
Ando, M., Obashi, A.: The pervasiveness of non-tariff measures in ASEAN-evidences from the inventory approach. In: Rising Non-Tariff Protectionism and Crisis Recovery. UN ESCAP (2010)
Carrère, C., de Melo, J.: Notes on detecting the effects of non tariff measures. J. Econ. Integr. 26, 136–168 (2011). Center for Economic Integration, Sejong University
Anderson, J.E., Yotov, Y.V.: Terms of trade and global efficiency effects of trade agreements, 1990-2002. NBER Working paper no. 17003 (2011)
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2020 Springer Nature Switzerland AG
About this paper
Cite this paper
Suslov, D.V. (2020). Estimating the Effects of Free Trade Agreements on Trade Flows in East Asia. In: Solovev, D. (eds) Smart Technologies and Innovations in Design for Control of Technological Processes and Objects: Economy and Production. FarEastСon 2018. Smart Innovation, Systems and Technologies, vol 138. Springer, Cham. https://doi.org/10.1007/978-3-030-15577-3_49
Download citation
DOI: https://doi.org/10.1007/978-3-030-15577-3_49
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-030-15576-6
Online ISBN: 978-3-030-15577-3
eBook Packages: Intelligent Technologies and RoboticsIntelligent Technologies and Robotics (R0)