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Estimating the Effects of Free Trade Agreements on Trade Flows in East Asia

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Smart Technologies and Innovations in Design for Control of Technological Processes and Objects: Economy and Production (FarEastСon 2018)

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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.

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Authors and Affiliations

  1. Economic Research Institute, Khabarovsk, 680042, Russia

    D. V. Suslov

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  1. D. V. Suslov
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Correspondence to D. V. Suslov .

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Editors and Affiliations

  1. Department of Innovatics, Engineering School, Far Eastern Federal University (FEFU) , Vladivostok, Russia

    Denis B. Solovev

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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

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