Trade Creation and Trade Diversion Effects: The Case of the Asean Plus Six Free Trade Area

Abstract

This study examines whether trade agreements promoted under the ASEAN+6 over the period 2007-2017 supported trade creation and/or trade diversion effects within three export product groups, namely, manufactured goods, primary products, and natural resources-based goods. Using a gravity model, we note that primary products offer pure trade creation (greater intra-bloc and extra-bloc trade). Manufactured products experienced trade creation in intra-bloc and extrabloc exports, while natural resources-based goods show trade creation in intraregional exports and trade creation in imports from extra-bloc.

Trade Liberalization and Comparative Advantage: Evidence from Indonesia and Asian Trade Partners

“…Contrary to other studies where the gravity model is applied to highly aggregated data, we provide empirical evidence for more homogenous groupings of products to avoid aggregation bias of unrelated goods (Okabe and Urata 2014). Previous studies carrying out gravity models supported the positive effect of ASEAN regional partners, as for China (Yang and Martinez-Zarzoso 2014), India (Khurana and Nauriyal 2017), ASEAN in agricultural goods (Sugiharti et al 2020b), or other Asian partners (Handoyo et al 2021;Taguchi 2015). We explore a broader scope of regional country members (ASEAN plus China, Japan, India, Australia, New Zealand, and South Korea) and offer empirical evidence of trade agreements for different groups of products that are rarely covered.…”

“…In ASEAN, lowering tariffs supported intra-ASEAN trade, although more substantial benefits (trade expansion) could be achieved by implementing non-tariff measures (Okabe and Urata 2014). Trade agreements' effects on larger imports were also observed in the literature, with positive impacts on access to cheaper and higher quality inputs but, at the same time, pressuring the domestic competition (Dai et al 2014;Handoyo et al 2021). Okabe and Urata (2014) noted that the agreement supported trade creation effects in many products, while evidence of trade diversion effects was found in nearly half of the goods studied.…”

“…First, the trade creation/diversion effects for sub-groups of products in the ASEAN Plus Six region remain open to empirical evidence. While the effects of liberalization in manufacturing and agricultural trade are commonly studied (Handoyo et al 2021;Sugiharti et al 2020a), there is a research gap in the impact of liberalization on disaggregated product groups. We aim to look at the effects across production related to countries' technological capabilities and factor endowments.…”

“…The strategy that proposes broader trade agreements with nearby (geographically) partners suggests that regional members could benefit from what Deardorff (2004) coined as "local comparative advantage". Still, evidence suggests that the ASEAN Plus Six strategic partners' bilateral agreements led to mixed outcomes (Handoyo et al 2021;Taguchi 2015), with partners like China gaining more than other partners (e.g., India or South Korea).…”

Globalisation, Logistics and Food Supply: Evidence from Vietnam

“…This impact could be positive or negative dependent on the nature of the trading relationship. To measure the effect of globalisation on export growth, a number of recent studies have employed a dummy variable which considers whether the exporting and importing country share common membership to a RTA in a certain year (Darmanto et al, 2021;Han & Tian, 2020;Handoyo et al, 2021;Jagdambe & Kannan, 2020). Most of these studies have focused on the case of ASEAN countries.…”