A panel data analysis of trade creation and trade diversion effects: The case of ASEAN–China Free Trade Area

Abstract

This study uses a theoretically justified gravity model of trade to examine the impact of the ASEAN-China Free Trade Agreement (ACFTA) on exports, focusing on trade creation and diversion effects. The model is tested on a sample of 31 countries over the period dating from 1995 to 2010 using aggregated and disaggregated export data for agricultural and manufactured goods and within manufactures for chemical products, as well as for machinery and transport equipment. In order to obtain unbiased estimates, multilateral resistance terms are included as regressors and the endogeneity bias of the FTA variables is addressed by controlling for the unobserved specific heterogeneity that is specific to each trade flow. A Multinomial PML is also applied to solve the zero trade issue and the presence of heteroskedasticity. The results indicate that ACFTA leads to substantial and significant trade creation. Using disaggregated data, the significant and positive relationship between exports and ACFTA is confirmed in the case of both agricultural and manufactured goods, as well as in the case of the most important manufacturing industries, namely, chemical products and machinery and transport equipment.

The Impact of Competitiveness on Trade Efficiency: The Asian Experience by Using the Stochastic Frontier Gravity Model

“…Greene (2013) indicated that countries with bigger populations have larger and more varied production, are more self-contained, and tend to trade less than countries with smaller populations. Yang and Martinez-Zarzoso (2013) added that, population would tend to negatively correlate with trade flows as larger populations mention bigger domestic markets, generous resource endowment and more different outputs, as well as less dependence on international specialization. Additionally, they pointed out that the coefficient of population can also be positive, because a larger population in an importing country allows of imported goods to compete better with domestic goods and balances exporters for the cost of sales activities abroad.…”

Trade Potential of China’s Export to ASEAN: The Gravity Model Using New Economic Mass Proxies

“…Starting from the new century, the compound annual growth rate of China's export trade to ASEAN is 21.73% by the end of 2014, which is higher than that of China's total export trade of 17.36% during the same period 1 . Since the 2008 global financial crisis, in order to protect domestic industries, governments of different countries implemented nontariff barriers like green barriers and technical barriers, which greatly influenced China's export trade negatively.…”

Assessing the Impact of ASEAN+3 Free Trade Agreements on ASEAN’s Trade Flows: A Gravity Model Approach1

“…Therefore, the panel data should be extended for the longer period of AFTA's implementation to further consider the trade creation effects. Yang and Martinez-Zarzoso (2014) employed gravity model with an objective of assessing trade creation and trade diversion effects of ACFTA. The paper showed that export flow among members of ACFTA was significantly favored by the reduction in tariff barriers.…”

“…Indeed, it is the establishment of World Trade Organization (WTO) with the involvement of 161 members 2 that provides a convincing explanation for the benefits of opening markets with all those concerned. However, the Doha round of multilateral trade negotiations initiated in 2001 reached an impasse in 2012 (Evenett, 2012).Since the early of 1990s, the picture of international trade integration has been largely characterized by bilateral and regional free trade agreements (RTAs) (Yang & Martinez-Zarzoso, 2014). According to WTO statistics, 262 out of 449 RTAs which have been notified by WTO are presently in force by 2015 3 .…”

“…In this regard, many studies have been conducted to identify the particular impacts of FTAs. The notable papers applying the econometric methodology include the work on AFTA by Elliot and Ikemoto (2004), Cabalu and Alfonso (2007), Calvo Pardo, Freund andOrnelas (2009), Shujiro andOkabe (2013), the other papers on ACFTA (Lijun, 2003;Yue, 2004;Tongzon, 2005 andYang andMartinez-Zarzoso, 2014), on AKFTA (Park and Estrada, 2008). Noticeably, Guilhot (2010) made the first attempt to measure the effects of AFTA, AKFTA and ACFTA on East Asian trade flows but failed to include AJCEP.…”