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Do Free Trade Agreements Increase the New Goods Margin? Evidence from Korea

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  • Sang-wook (Stanley) Cho

    (University of New South Wales)

  • Hansoo Choi

    (Korea Institute of Public Finance)

  • Julián P. Díaz

    (Loyola University Chicago)

Abstract

We analyze the changes in the composition of bilateral trade—and more specifically, in the new goods margin—following the free trade agreements (FTAs) signed by Korea between 2004 and 2008. We find that new goods trade increased disproportionately after the FTAs came into effect, and that least-traded goods (LTG)—those accounting for the lowest 10% of trade prior to the FTAs—ended up accounting for 37% of post-FTA trade with FTA partners. In contrast, the corresponding share for a comparable group of countries that did not sign FTAs with Korea was only half as large, averaging close to 20%. We also find that only less than 2% of all least-traded products accounted for most of the growth in LTG trade, and that those goods tended to be clustered in the same industries as the intensively-traded goods. Furthermore, a larger fraction of LTG became heavily traded for the case of FTA partners than for non-FTA countries. Finally, we find evidence that least-traded imports were subject to higher pre-FTA tariff protection than other products.

Suggested Citation

  • Sang-wook (Stanley) Cho & Hansoo Choi & Julián P. Díaz, 2018. "Do Free Trade Agreements Increase the New Goods Margin? Evidence from Korea," Open Economies Review, Springer, vol. 29(5), pages 1095-1122, November.
  • Handle: RePEc:kap:openec:v:29:y:2018:i:5:d:10.1007_s11079-018-9500-5
    DOI: 10.1007/s11079-018-9500-5
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    More about this item

    Keywords

    Trade liberalization; Free trade agreements; Extensive margin; New goods margin; Intensive margin;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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