Search results

The purpose of this paper is to examine the effects of a regional trade agreement among a group of small island developing states on trade creation and trade diversion.

An augmented gravity model and panel data are used to estimate the trade creation and trade diversion effects. The generalized method of moments technique is used to account for possible endogeneity. Country pair and time fixed effects are also included.

The regional trade agreement had a positive effect on intra-regional trade creation, but there was no significant diversion of imports from extra-regional trade partners.

Small developing economies can benefit from regional trade agreements (RTAs) among themselves. The trade diversion effects of such agreements are likely to be limited.

To the best of authors’ knowledge, this is the only paper which investigates the impact of RTAs among small island developing states.

This article analyses the welfare implications of the customs unions in the presence of multinational corporations for a less than fully employed small open economy. The traditional two‐sector model, with a specific factor for the multinational corporation, is employed for this purpose. This article suggests that both trade creations I and II improve the social welfare and employment of the small open economy if the multinational sector is relatively capital‐intensive. However, the welfare and the employment effects of trade diversion I are ambiguous whereas trade diversion II affects employment level negatively. These results are in contrast with the previous studies on the theory of customs unions.

This paper uses the gravity model to examine the impact of the Common Market for Eastern and Southern Africa on the flow of Kenya's exports. The empirical results suggest that COMESA has the effect of trade creation. No evidence for trade diversion is found. Accordingly, COMESA has helped to improve Kenya's export performance and, in turn, assisted in the effort to achieve the Millennium Development Goals. The results also show that nominal GDP of importing countries, distance, adjacency, and common official language have a statistically significant impact on the flow of Kenya's exports.

The effects of reductions in Canadian tariffs on imports from thirty non‐OPEC Third World countries are estimated using quarterly data for the period 1972–79. Estimates of total trade expansion, trade diversion and trade creation are obtained using linear and a log‐linear specification. The results imply that the trade diversion effect is in general and for most commodity groups larger than the trade creation effect.

The purpose of the paper is to explore the economic repercussions of potential India–USA free trade agreement (FTA) on the trade of agricultural commodities at HS 2-digit level.

The analysis is undertaken by assuming tariff reduction in a phased manner using the World Integrated Trade Solutions (WITS)-SMART partial equilibrium model to identify the trade creation and trade diversion effects.

Overall results show that both the trading partners gain from the proposed FTA. Trade creation dominates over trade diversion in India's analysis.

An FTA between India and the USA could be an essential step toward more liberal trade regimes and provide enormous economic benefits to both countries. Government of both the countries should support deeper integration. This will create more job opportunities and generate prosperity in both economies.

There are numerous studies conducted on evaluating the impact of FTAs ratified between countries. But there are limited studies which evaluate the impact of the proposed India–USA FTA on the economies of both trading partners specifically on the agriculture sector.

This paper aims to use the approach based on the application of the law of gravity for the study of the flows of export and the effects of the RTAs.

In this paper, the authors evaluate the effects of RTAs on exports between members and non-members taking into account the Vinerian specification. The authors also try to estimate the impact of the recent economic crisis on the flows of export and the success of the RTAs. The authors use a model of static and dynamic gravity for 40 countries and six RTAs during the period 1980-2011.

Definitely the proliferation of RTAs will continue to be one of the driving forces that will constitute the political system and the global economy in the following years. It indicates a process that implies the merger of economies separated in bigger regions of free trade. Regional integration is seen as beneficial in many senses and is the major economic objectives in addition to presenting a stabilizing factor in international relations.

The gravity model is estimated using the last techniques of panel data which takes into account the endogeneity of the effects of integration and the existence of dynamic effect.

This article examines the impact of the ASEAN Free Trade Area (AFTA) on Korean exports to ASEAN countries by using the system generalized method of moments. The data covered 15 sectors according to their relative importance in Korean exports and spanned from 1980 to 2006. The estimated results suggest that Korea’s exports were diverted to ASEAN members as a result of the AFTA formation. In 5 of the 15 sectors, the AFTA exerted a significant negative effect on Korean exports to ASEAN countries, but for the remaining 9, the results were mixed and statistically insignificant. The results also indicate that the sectoral approach yields more robust and clear-cut results than the aggregate one.

The purpose of this paper is to investigate and assess the trends of bilateral services trade in the world segmented by trade for final consumption and intermediate usage across several service sectors. The differential trends, if any, are studied while examining the role of free trade agreements which have a chapter on services trade as well as the role of services trade restrictions. The study unravels differences across service sectors in this respect.

The author uses an augmented gravity model to address the above using OECD- World Trade Organization (WTO) TiVA data for bilateral trade in intermediates and final products (October 2015 release) and World Bank Services Trade Restrictions Index (STRI). The poisson pseudo maximum likelihood estimation technique is used in light of the structure of the data. Trade creating and diverting effects are identified controlling for time and country-time specific effects. The following sectors are specifically looked at: total business sector services, computer and related services, financial intermediation, post and telecommunication, transport and storage, R&D and other business services, hotels and restaurants, construction, and wholesale and retail trade.

First, services free trade agreements (FTAs) have had a trade creating impact with no trade diverting impact for services trade in aggregate with stronger effects on services traded for intermediate usage. Second, financial intermediation and post and telecommunication have been left unaffected by services FTAs. While no trade diversion is concluded for any sector, R&D and other business services, transport and storage and wholesale retail trade show maximum trade creation effects in response to FTAs. Third, trade restrictions of mainly OECD countries are responsible for lowering exports for most sectors. Finally, in terms of policy implications, at a general level, the author does not find a significant difference in the author’s results for services traded for intermediate usage or final consumption except for a stronger effect of FTAs on intermediate services trade. Hence, the policies to foster services trade on both counts are concluded to be the same and deal with behind-the-border policies of domestic industrial policy reforms like national treatment of foreign firms, licensing requirements, FDI policies, etc.

Statistics for services trade are limited. The data are only available for the years 1995, 2000, 2005, 2008, 2009, 2010 and 2011. Additionally, the conclusions on services trade restrictions are based on statistics for 2011 alone, since this is the only year for which the statistics are available. A complete time series for the entire sample period would increase robustness of the study with a better time variant version of the trade restrictiveness variable. Finally, in the construction of the OECD-WTO-TiVA database of a world IO table, there may have been approximations in constructing statistics for services traded for intermediate usage and final consumption. The results remain sensitive to the same but this is the best possible statistics available for the purposes.

This is the first study which looks at services trade segmented by trade for final consumption and intermediate usage taking advantage of the available data for a number of service sectors. The role of restrictions is also studied for the first time segmented by trade in intermediates and final consumption. The stronger effects of FTAs on intermediate services trade as well as financial intermediation and post and telecommunication services being insulated from effects of FTAs are important findings, especially since services are mainly thought to be traded for final consumption. Similar trends of results for services traded for intermediate usage and final consumption and restrictions affecting exports from exporter countries and imports by importer countries highlight the importance of behind-the-border domestic policies in facilitating or inhibiting services trade on both counts and more importantly for intermediate usage which, in turn, would improve goods tradability.

The international economic trade environment has been transformed in recent years by the rise of several regional trade blocks. The most important of these regional trade associations has been the European Union. Many Eastern European countries are currently applying to join this regional group, hoping that it will help their future economic growth. This paper examines the trade impact of EU membership on Portugal, a country that joined the EU in 1986. Portugal experienced significant positive and negative changes in its trade flows in the years following its EU entry. The analysis of the trade data for the first seven years following Portugal's accession shows a deterioration of the Portuguese trade deficit and a vary rapid re‐direction of Portuguese trade towards EU countries.

Applying a computable general equilibrium model to assess the impact of tariffs between the US and China, Taiwan stands to gain from trade diversion of the trade war between the two largest world economies in the short term.

Initially, Taiwan suffered a minor loss from the sector-specific tariff on steel and aluminum imposed by the US. However, its loss is mitigated after counting counter measures from foreign countries. The cumulated US tariffs and China's retaliations led to trade diversion effect. Taiwan's initial loss from the steel and aluminum tariffs was over compensated by a series of trade war between the US and China.

Under the scenario of the cumulated tariffs of $250 billion of US imports and China's retaliations of $110 billion on US goods, the social welfare, exports, import and trade balance in Taiwan increased. Its terms of trade improved as well. Real wage increases slightly more for unskilled labor than for skilled labor. The short-term effect of the trade war has positive effect on all macro indicators of Taiwan's economy.

On sectoral shift, Taiwan's export will gain the most in precision engineering products ($2,941.6 million), followed by electronics ($310.7 million) and agricultural products ($31.3 million). The negative effects are in sectors such as business services ($58.323 million), other services ($46.9 million), transportation service ($36.6 million), trade service ($25.3 million), and finance service ($24.5 million). Taiwan's total imports will increase by 0.59%, whereas its total export will increase by 0.33%. However, total trade balance still increases by $451.1 million.

The study also finds that Taiwan has a high degree of overlapping export commodities with China in the US market, much higher than most major trading partners for the US, yet its market share for those products in the US is ranged from 1% to 5% only. Moreover, more than 60% of Taiwan's export to the US is in intermediate goods which have less product differentiation than those in final consumption goods. These two factors will provide an opportunity for Taiwan to exploit the US market.

Though the short-term effect of trade war is positive, Taiwan needs to have a long-range planning amid the external shocks. Policy implications for Taiwan are to map out a cosmopolitan view of its geo-strategy by diversifying outward foreign direct investment and trade destinations. It needs to reduce the “systemic risk” of relying on single market in China which is vulnerable to the uncertainty in the US–China relations. If the trade war lasts too long, Taiwan would need to reevaluate its triangular trade-investment nexus with China and the US as well as its role in the global supply chain.