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Mega-regional trade agreements and Asia: An application of structural gravity to goods, services, and value chains

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  • Shepherd, Ben

Abstract

We use a flexible estimation and simulation platform built on the standard structural gravity model to analyze the trade and welfare implications of mega-regional trade agreements for Asian countries. Our counterfactuals suggest that all current mega-regional scenarios have the potential to generate significant export gains for Asian economies, but that welfare improvements are much lower relative to baseline. This finding suggests a political economy problem, as trade-related reallocations of labor and capital would have to be justified politically on the basis of relatively small improvements in real GDP. Second, our simulations show that market size matters for mega-regionals: FTAAP has larger trade and welfare effects than other agreements. Finally, we show that mega-regionals have significant potential to deepen value chain trade in the Asia-Pacific: FTAAP could see Japan and China increase their shares of intermediates in total goods and services exports at a rate equivalent to around five years of value chain deepening, taking the average rate of change observed worldwide.

Suggested Citation

  • Shepherd, Ben, 2019. "Mega-regional trade agreements and Asia: An application of structural gravity to goods, services, and value chains," Journal of the Japanese and International Economies, Elsevier, vol. 51(C), pages 32-42.
  • Handle: RePEc:eee:jjieco:v:51:y:2019:i:c:p:32-42
    DOI: 10.1016/j.jjie.2018.10.004
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    Cited by:

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    2. Timsina, Krishna P. & Culas, Richard J., 2020. "Impacts of Australia’s free trade agreements on trade in agricultural products: an aggregative and disaggregative analysis," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 64(3), July.
    3. Augusto Cerqua & Pierluigi Montalbano & Zhansaya Temerbulatova, 2021. "A decade of Eurasian Integration: An ex-post non-parametric assessment of the Eurasian Economic Union," Working Papers 1/21, Sapienza University of Rome, DISS.
    4. Roni Bhowmik & Yuhua Zhu & Kuo Gao, 2021. "An analysis of trade cooperation: Central region in China and ASEAN," PLOS ONE, Public Library of Science, vol. 16(12), pages 1-25, December.
    5. Sapkota, Jeet Bahadur, 2020. "Integrating South Asia into Asia: Evidence from Trade Statistics," MPRA Paper 106097, University Library of Munich, Germany.
    6. Lilik Sugiharti & Rudi Purwono & Miguel Angel Esquivias Padilla, 2020. "Analysis of determinants of Indonesian agricultural exports," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(4), pages 2676-2695, June.
    7. Bangchu Qiu & Gang Tian & Daoming Wang, 2022. "Empirical Analysis of Sustainable Trade Effects of FTAs Based on Augmented Gravity Model: A Case Study of China," Sustainability, MDPI, vol. 15(1), pages 1-12, December.

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    More about this item

    Keywords

    Regional integration; Gravity model; General equilibrium; Global value chains;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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