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The Impacts of Free Trade Agreements on Trade Flows: An Application of the Gravity Model Approach

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  • URATA Shujiro
  • OKABE Misa

Abstract

The proliferation of FTAs appears to have affected economic conditions in many countries through foreign trade. We attempt to discern the impacts of FTAs on foreign trade by using two approaches. One approach is to examine the changes in trade patterns before and after an FTA by using indicators of intra-FTA interdependence. The second approach is the estimation of a gravity equation to discern the impacts of FTAs on bilateral trade flows, i.e. trade creation and diversion effects. In the latter approach we extend the previous studies by enlarging the sample size in terms of the time-period, and also undertake an analysis by disaggregating the trade data with a presumption that the impact of FTAs is different for different sectors. The results of the analysis revealed several interesting observations. Our analysis of the total trade indicates that FTAs bring about trade creation effect and that trade diversion effect is limited. Besides, the results of our analysis of disaggregated trade data show different patterns among different products, and they identify trade diversion effect for many products in the case of the EU, the NAFTA, and the MERCOSUR but not for the case of the AFTA.

Suggested Citation

  • URATA Shujiro & OKABE Misa, 2007. "The Impacts of Free Trade Agreements on Trade Flows: An Application of the Gravity Model Approach," Discussion papers 07052, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:07052
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    Cited by:

    1. Kumar Gaurav & Nalin Bharti, 2019. "Some Common Lessons from Uncommon FTAs," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 20(1), pages 138-157, March.
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    3. Rod Falvey & Neil Foster-McGregor, 2013. "On the Trade and Price Effects of Preferential Trade Agreements," wiiw Working Papers 102, The Vienna Institute for International Economic Studies, wiiw.
    4. Sapkota, Jeet Bahadur, 2020. "Integrating South Asia into Asia: Evidence from Trade Statistics," MPRA Paper 106097, University Library of Munich, Germany.
    5. Amélie Guillin, 2012. "The impacts of Regional Trade Agreements in force in Europe on trade in services," Economics Bulletin, AccessEcon, vol. 32(1), pages 685-697.
    6. Karemera, David & N’Dede, Cynthia & Smalls, Gerald Hubbard & Whitesides, Louis, 2021. "Assessing Trade Benefits of A Ttip and the Role of Regional Trade Free Blocks on South Carolina Agricultural Exports: A Static and Dynamic Gravity Model Approach," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 9(4), October.
    7. Sapkota, Jeet Bahadur & Acharya, Chakra Pani & Minowa, Mari & Neupane, Pramila, 2018. "Trade integration in Asia: Trends and determinants," MPRA Paper 106063, University Library of Munich, Germany.
    8. Neil Foster, 2012. "Preferential Trade Agreements and the Margins of Imports," Open Economies Review, Springer, vol. 23(5), pages 869-889, November.
    9. Sapkota, Jeet Bahadur & Shuto, Motoko, 2016. "Is Pan-Asian Economic Integration Moving Forward? Evidence from Regional Trade Statistics," MPRA Paper 106075, University Library of Munich, Germany.
    10. Neil Foster & Robert Stehrer, 2011. "Preferential trade agreements and the structure of international trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(3), pages 385-409, September.
    11. Henry Chun Kwok Lei, 2017. "The Closer Economic Partnership Arrangement (CEPA) and its impacts on the export efficiency of Hong Kong and Macao," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 15(2), pages 141-163, April.
    12. Eckhardt, Jappe & Serrano, Omar, 2014. "Economic Integration and Rivalry in Asia: Comparing Regional Trade Strategies of China and India," Papers 762, World Trade Institute.
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    14. Alassane D. Yeo & Aimin Deng, 2019. "The trade policy effect in international trade: case of Pakistan," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-17, December.

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    More about this item

    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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