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

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  • Yang, Shanping
  • Martinez-Zarzoso, Inmaculada

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.

Suggested Citation

  • Yang, Shanping & Martinez-Zarzoso, Inmaculada, 2014. "A panel data analysis of trade creation and trade diversion effects: The case of ASEAN–China Free Trade Area," China Economic Review, Elsevier, vol. 29(C), pages 138-151.
    • Handle: RePEc:eee:chieco:v:29:y:2014:i:c:p:138-151
    DOI: 10.1016/j.chieco.2014.04.002
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    More about this item

    Keywords

    Gravity model; Panel data; Trade creation and trade diversion effects; ACFTA;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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