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Is East Asia less open than North America and the European Economic Community? No

Listed author(s):
  • Dhar, Sumana
  • Panagariya, Arvind

To shed light on regional integration schemes in North America and Europe (and on the alleged trading bloc in East Asia), the authors explore the nature of bilateral trade relationships. Using the gravity model, they conduct an econometric analysis of trade flows between major trading countries. They estimate bilateral trade flow equations using a data set for 45 countries over 12 years and then use those equations to study the contribution of trading blocs to intra-regionnal trade. Past investigators have estimated the gravity equation using data for total trade, pooling data across countries. The authors estimate separate equations for the exports and imports of 22 countries (nine in East Asia, six in Europe, three in North America, two in South America, and one in Oceania). Using 27 countries outside of North America, East Asia, and the founding members of the European Union (EEC) as the control countries, the authors test for each region's openness to trade with outside countries. They conclude that: 1) results based on individual-country equations differ greatly from those obtained from pooled, cross-country equations. In some cases, this difference is qualitative. Not surprisingly, in virtually all cases the cross-country equation masks large differences among countries. The coefficient asscociated with distance, for example, varies between -4.4 and -0.4 across the authors'equations. In almost every case the coefficient is statistically significant at a confidence level of 99 percent or more; 2) If there is an intra-regional bias in trade, it is more in North America and among the founding members of the European Union than in East Asia. Canada, the United States, and all countries of the EEC show an intra-regional bias in both exports and imports. In East Asia, on the other hand, exports in six out of nine countries have a statistically significant bias away from intra-regional markets; 3) There is little support for the hypothesis that East Asian markets are closed to trade with outside countries; and 4) Contrary to conventional wisdom, controlling for other variables, many countries export less to North America than to countries outside the three regions. Similiarly, countries outside the EEC export more to the EEC than to countries in the control group.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1370.

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Date of creation: 31 Oct 1994
Handle: RePEc:wbk:wbrwps:1370
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  1. Jeffrey A. Frankel, 1993. "Is Japan Creating a Yen Bloc in East Asia and the Pacific?," NBER Chapters,in: Regionalism and Rivalry: Japan and the United States in Pacific Asia, pages 53-88 National Bureau of Economic Research, Inc.
  2. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-481, August.
  3. Aitken, Norman D, 1973. "The Effect of the EEC and EFTA on European Trade: A Temporal Cross-Section Analysis," American Economic Review, American Economic Association, vol. 63(5), pages 881-892, December.
  4. Paul R. Krugman, 1991. "The move toward free trade zones," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 7-58.
  5. Thursby, Jerry G & Thursby, Marie C, 1987. "Bilateral Trade Flows, the Linder Hypothesis, and Exchange Risk," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 488-495, August.
  6. Foroutan, Faezeh & Pritchett, Lant, 1993. "Intra-sub-Saharan African Trade: Is It Too Little?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 2(1), pages 74-105, May.
  7. Markusen, James R, 1986. "Explaining the Volume of Trade: An Eclectic Approach," American Economic Review, American Economic Association, vol. 76(5), pages 1002-1011, December.
  8. Gary R. Saxonhouse, 1993. "Pricing Strategies and Trading Blocs in East Asia," NBER Chapters,in: Regionalism and Rivalry: Japan and the United States in Pacific Asia, pages 89-124 National Bureau of Economic Research, Inc.
  9. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517 Elsevier.
  10. Havrylyshyn, Oleh & Pritchett, Lant, 1991. "European trade patterns after the transition," Policy Research Working Paper Series 748, The World Bank.
  11. Panagariya, Arvind, 1993. "Should East Asia go regional? No, no and maybe," Policy Research Working Paper Series 1209, The World Bank.
  12. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
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