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A Factor Analysis of Trade Integration: The Case of Asian and Oceanic Economies

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Author Info
Yin-Wong Cheung (University of California, Santa Cruz)
Matthew S. Yiu (Hong Kong Monetary Authority)
Kenneth K. Chow (Hong Kong Institute for Monetary Research)

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Abstract

We study trade integration among 15 selected Asian and Oceanic economies using factor models. The principal component approach is employed to extract the common factor that drives trade integration from bilateral trade integration series. It is found that the estimated common trade integration factor has strong seasonal and deterministic components. In accordance with theory, the common trade integration factor is significantly associated with the economic growth and the trade barriers of the 15 economies. However, we find no evidence that the common trade integration factor is affected by foreign direct investment. The basic model is extended to incorporate an ASEAN factor that affects trade integration among the ASEAN economies in our sample.

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Publisher Info
Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 132009.

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Length: 24 pages
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:hkm:wpaper:132009

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Related research
Keywords: Factor Model; Principal Component; Growth; Trade Barriers; ASEAN;

Find related papers by JEL classification:
F15 - International Economics - - Trade - - - Economic Integration
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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    Other versions:
  7. Breitung, Jörg & Eickmeier, Sandra, 2005. "Dynamic factor models," Discussion Paper Series 1: Economic Studies 2005,38, Deutsche Bundesbank, Research Centre. [Downloadable!]
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  8. Kimura, Fukunari, 2007. "The mechanics of production networks in Southeast Asia: the fragmentation theory approach," CEI Working Paper Series 2007-8, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
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  10. Giannone, Domenico & Reichlin, Lucrezia & Small, David, 2005. "Nowcasting GDP and Inflation: The Real Time Informational Content of Macroeconomic Data Releases," CEPR Discussion Papers 5178, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  11. Hedi Bchir & Michel Fouquin, 2006. "Economic Integration in Asia: Bilateral Free Trade Agreements Versus Asian Single Market," Working Papers 2006-15, CEPII research center. [Downloadable!]
  12. Yin-Wong Cheung & Jude Yuen, 2005. "The Suitability Of A Greater China Currency Union," Pacific Economic Review, Blackwell Publishing, vol. 10(1), pages 83-103, 02. [Downloadable!] (restricted)
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  13. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January. [Downloadable!] (restricted)
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