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

  • Yin-Wong Cheung

    (University of California, Santa Cruz)

  • Matthew S. Yiu

    (Hong Kong Monetary Authority)

  • Kenneth K. Chow

    (Hong Kong Institute for Monetary Research)

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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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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