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The EU-Korea free trade agreement: Anticipation, trade policy uncertainty and impact

Author

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  • Csilla, Lakatos

    (World Bank)

  • Lars, Nilsson

    (DG Trade)

Abstract

Anticipatory trade effects of free trade agreements (FTAs) have been documented in various papers. That is, trade between two partners appears to increase before an FTA between them has entered into force. Several reasons have been put forward trying to explain this phenomenon; among them reduced trade policy uncertainty. Firstly, using an econometric framework, this paper is one of the first to explore the role of anticipation and trade policy uncertainty (e.g. the presence of unbound tariffs and lower applied tariffs than bound tariffs) in the case of a recently concluded deep and comprehensive EU FTA, including significant behind the border measures. We do so by separately considering the impact of the FTA during different periods of time. Secondly, we use monthly data at a lower level of aggregation (8-digit level) compared to previous studies and we account for changes in the EU product classification over time. Thirdly, we distinguish between the impact on products which are actually subject to liberalisation under the FTA as opposed to those which are already duty-free and, finally, we examine the effects on both the extensive margin (probability to export products) and the intensive margin (change in the value of products exported). As far as the EU is concerned, the figures indicate that the FTA has increased the probability to export by about 11.2% while the value of exports has been boosted by 10.7%. In case of Korea, the impact is smaller. The average probability to export has increased by 4.8% while the value of Korean exports has risen by 2.0% as a result of the agreement.

Suggested Citation

  • Csilla, Lakatos & Lars, Nilsson, 2015. "The EU-Korea free trade agreement: Anticipation, trade policy uncertainty and impact," DG TRADE Chief Economist Notes 2015-2, Directorate General for Trade, European Commission.
    • Handle: RePEc:ris:dgtcen:2015_002
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    References listed on IDEAS

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    More about this item

    Keywords

    trade policy uncertainty; anticipation; FTA; EU-Korea;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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