On the trade-diversion effects of free trade agreements

Trade-diversion effects of free trade agreements (FTAs) have not been thoroughly examined empirically. Using a novel empirical approach, we confirm that FTAs divert trade away from non-member countries and even more so from internal trade (domestic sales) in member countries.     

Sectoral FTA gains,conflicts, and the role of interindustry factor mobility: Evidence from Korea's free trade agreement

Free trade agreements (FTAs) can ignite domestic conflicts between export- and import-competing industries over trade gains. However, if the factors of production, such as capital and labour, move freely across industries, the returns to factor owners will quickly converge. Then, sectoral conflicts over FTAs will be less likely to arise. We analyse the case of South Korea's FTAs to measure (a) sectoral FTA gains and (b) interindustry factor mobility and to examine (c) the role of interindustry factor mobility in mitigating sectoral conflicts over trade policies. South Korea is an ideal case study due to the low barriers to domestic geographic mobility and high trade dependence. Based on data on its trade with 252 countries and factor returns between 2002 and 2017, we find that export industries did not gain much from the FTAs, while the import-competing agricultural sector was the winner. Sectoral conflicts greatly decreased over 2008–2010. Interindustry capital mobility plays a significant role in weakening the sectoral conflicts, while the impact of interindustry labour mobility is limited.     

Free Trade Agreements and Domestic Politics: The Case of the Trans‐Pacific Partnership Agreement

What is the role of domestic politics in facilitating or constraining a government's decision to participate in free trade agreements (FTAs)? This paper seeks to answer this question by focusing on the domestic politics in Japan over the Trans‐Pacific Partnership Agreement (TPP). In particular, we ask why the opposition to the TPP encompasses a much broader segment of society than is predicted by trade theorems. We show that a broader protectionist coalition can emerge through persuasion and policy campaigns by the elites, in particular, powerful protectionist interests expending resources to persuade the uncertain public.     

What drives trade in services? Lessons from the Nordics

This article makes an empirical assessment of the relative importance of non-actionable institutional and cultural factors and actionable policy measures for services market integration, using the Nordic countries as a case study. The Nordics are an ideal case as they are perceived to be a cluster of similar countries, but they have chosen different relations to the European Union (EU) and the rest of the world. First, comparing actionable and non-actionable determinants of services trade, I find that policy-determined free trade agreements (FTAs) boost services trade by 75% and a single market by an additional 45%, while the accumulated effect of all standard non-actionable shared geographical, institutional and cultural features (sharing a land border, language, colonial past and legal origin) almost triples services trade. Having controlled for all these determinants, intra-Nordic trade in services is more than three times the predicted value. An unexplained Nordic bias of this magnitude indicates that full integration of services markets may rely on deeper institutional and cultural factors.     

外部关税约束、自由贸易区规模与世界自由贸易

该文在外部关税约束条件下分析了几种不同类型的自由贸易区与世界自由贸易的关系,该文结果显示,一个实行开放成员国地位的自由贸易区可以实现世界自由贸易,但是当自由贸易区以追求成员国福利最大化为目标时,在世界规模大于4时,该自由贸易区的扩张不可能最终实现世界自由贸易.该文还研究了对称的自由贸易区是否可以通过进一步的融合从而把世界变成一个一体化的自由贸易区,结果显示,具有对称市场能力的自由贸易区可以通过进一步的融合提高成员国福利,从而最终实现世界自由贸易.     

Measuring fixed costs for firms’ use of a free trade agreement: Threshold regression approach

By employing the threshold regression method, we estimate the average tariff equivalent of fixed costs for the use of a free trade agreement (FTA) among all existing FTAs in the world. It is estimated to be around 3%.     

The Future of East Asia’s Trade: A Call for Better Globalization

This paper is about how East Asia should respond to the challenges of the external environment. The first challenge is the current slowdown in trade, which has been due to cyclical and structural factors such as the decline in productivity and the maturation of global value chains. The rise in protectionism as measured by rising trade restrictiveness has not impacted on trade, but political and policy uncertainty regarding the direction of trade policy seems to have begun to impact on trade growth. The policy stance of increased protectionism and a retreat from the multilateral rules‐based trading system is linked to the pockets of the population who have not seen their incomes improve and who have blamed their plight and increased inequality on globalization. In fact, the issue is more about the lack of effective responses to manage the costs of trade liberalization. East Asian economies need to respond to these challenges by upholding the multilateral rules‐based trading system, continuing the various pathways to regional economic integration, and ensuring better globalization through effective capacity building and policies to address the negative effects of trade liberalization.     

Are free trade agreements good for the environment? A panel data analysis

This study empirically examines the relationship between free trade agreements (FTAs) and greenhouse gas (GHG) emissions. For this purpose, we use three different FTAs: the Southern Common Market, the North American Free Trade Agreement, and the Australia–United States Free Trade Agreement. These FTAs are between developing, both developing and developed, and only developed countries, respectively. Panel unit root, panel cointegration, and fully modified ordinary least squares estimations are employed to examine the long‐run relationship between GHG emissions and trade liberalization. The results indicate that the environmental effects of FTAs depend on the different agreement types. When FTAs are between only developed or developing countries, overall there is no environmental damage, and these types of FTAs can be beneficial for the environmental quality in the long run. However, when developing and developed countries are in a trade agreement, overall environmental quality decreases due to increased GHG emissions.     

A SEARCH FOR CLOSER ECONOMIC RELATIONS IN EAST ASIA

In recent years, growing interdependence in East Asia through trade and financial cooperation heightened the need for East Asian Economies to engage in closer regional economic relations. This paper attempts to discuss emerging economic integration efforts in East Asia with special reference to bilateral and regional free trade agreements. It discusses backgrounds for recent developments of East Asian regionalism in terms of deepening intraregional economic dependence and financial cooperation, and South Korea's position towards FTAs with major trading partners as well as East Asian economic integration. Important issues and challenges for an East Asian FTA are presented.     

Free Trade Agreements and the Prospects for Regional Integration in East Asia

Trade policy in East Asia has switched from non-discriminatory unilateral liberalization, reinforced by General Agreements on Tariffs and Trade/World Trade Organization (GATT/WTO) commitments, to discriminatory free trade agreements (FTA). The paper surveys the FTA activity of the major regional players: China, the ASEAN countries, Japan, and South Korea. It concludes that emerging FTAs are weak and partial. A hub-and-spoke pattern of dirty FTAs will not drive regional economic integration or further integration with the global economy. Rather, it could be a force of regional economic disintegration – especially if the multilateral trading system weakens further. At the same time, FTA activity is distracting attention from the WTO, and, more fundamentally, from unilateral liberalization and domestic structural reforms. Hence, East Asian trade policies need to be rebalanced, with better-quality FTAs and more focus on the WTO. However, more important than the WTO and FTAs is a fresh spurt of unilateral liberalization and structural reform outside trade negotiations.     

What drives cross-country differences in export variety? A bilateral panel approach

A worldwide event like the 2020 Coronavirus outbreak can only reinforce the interest in modelling trade diversification as a key factor in countries’ vulnerability to external shocks. This paper adopts a detailed relative framework to study the determinants of product-level export variety in a large bilateral panel of developing and developed economies (16,770 country pairs in the period 1988–2014). We find that country pairs characterized by large differentials in productivity and in the makeup of the labour force differ in export variety patterns. This result holds after controlling for other endowments and for trade costs. Further, productivity plays a significant role in the reduction of export variety dissimilarities between countries belonging to different income groups. Hence, without successful technological convergence the low-income economies will not be able to reduce their exposure to export risk.     

Regional Integration and Lobbying for Tariffs Against Nonmembers

We study the impact of regional trading arrangements (RIAs) on tariff policy toward nonmembers in a three-good, three-country political economy model. Comparing free-trade areas (FTAs) with and without rules of origin and customs unions (CUs) with varying degrees of economic and political integration, we show how increasingly deep integration can lead to rising protection against nonmember imports. Other differences between FTAs and CUs, like the extent of free-riding in a CU and any component of a CU's tariff designed to improve the members' terms of trade, are not explicitly accounted for. Nevertheless, the results suggest that FTAs are likely to welfare dominate CUs.     

新一代双边自由贸易协定的比较与借鉴--以日新FTA、欧墨FTA为例

文章回顾了区城自由贸易的发展历程，认为近年来世界双边自由贸易协定(FTA)出现了新趋势，并分析了其原因。作者以日新FTA、欧墨FTA为例，重点论述了双边FTA的特点，指出中国加入WTO后，应把发展双边FTA作为一个战略来考虑，并提出了具体的政策建议。     

FREE TRADE NETWORKS WITH TRANSFERS*

We investigate the network of bilateral free trade agreements (FTAs) in the context of a network formation game with transfers. In a previous paper we showed that without international transfers countries with different industrialization levels cannot sign an FTA, so that the global free trade network, in which every pair of countries signs an FTA, is not in general pairwise‐stable. In this paper we show that, even if the world consists of fairly asymmetric countries, the global free trade network is pairwise‐stable when transfers between FTA signatories are allowed. Moreover, it is a unique pairwise‐stable network unless industrial commodities are highly substitutable.     

Trade, regulations, and income

We examine the relationship between openness and per-capita income using cross-country data from 126 countries. We find that trade leads to a higher standard of living in flexible economies, but not in rigid economies. Business regulation, especially on firm entry, is more important than financial development, higher education, or rule of law as a complementary policy to trade liberalization. Specifically, after controlling for the standard determinants of per-capita income, our results imply that a 1% increase in trade is associated with more than a one-half percent rise in per-capita income in economies that facilitate firm entry, but has no positive income effects in more rigid economies. The findings are consistent with Schumpeterian “creative destruction”, which highlights the importance of new business entry in economic performance, and with previous firm-level studies showing that the beneficial effects of trade liberalization come largely from an intra-sectoral reallocation of resources.     

Domestic trade protection in vertically-related markets

We consider trade policy in a setting where home country firms are fully dependent on vertically-integrated foreign firms for supplies of a key input. We find that vertically-integrated firms' strategic considerations play an important role and that, in particular, a tariff on final goods may either increase or decrease the domestic price of final goods. The import of final goods is always taxed to extract and shift rents from foreign firms, while the import of intermediate goods can be either taxed or subsidized. The market structure is shown to be an important consideration when making trade policy.     

Domestic Political Institutions,Diplomatic Style and Trade Agreements: A Comparative Study of China and Japan

Through an analysis of the formation of free trade agreements (FTAs), this article seeks to examine the factors that caused the gap in Japan and China's relationship with Southeast Asia to emerge and expand in the new millennium. In order to address this question, the article focuses on China and Japan's diplomatic styles and domestic political institutions and examines how these two elements influenced negotiations on the formation of FTAs, as well as the evolving perceptions that the Southeast Asian nations have of these two states. The article argues that Japan and China possess different kinds of weaknesses in implementing feasible external policies – a lack of policy decisiveness for Japan and weak policy credibility for China – which have resulted from the operation of domestic political institutions. Given these differences, while China implemented pragmatic diplomacy that helped improve its policy credibility, Japan's bargaining diplomatic style did not serve to rectify its weak policy decisiveness. Such differences in their diplomatic approach have led to the differing influence of these two states on Southeast Asia.     

Do Customs Union Members Engage in More Bilateral Trade than Free‐Trade Agreement Members?

This paper provides the first empirical analysis directly comparing the effects of customs unions (CUs) and free‐trade agreements (FTAs) on members’ bilateral trade, while addressing the biases arising from log‐linearization of the gravity model and crucial time‐invariant unobservables. Since Fiorentino et al. (2007 ) question the popularity of CUs relative to FTAs, considering the latter to be more practical in the current trading climate, such a comparison seems especially relevant. While Baier and Bergstrand (2007 ) find an FTA to approximately double members’ bilateral trade after 10 years, the results of this paper find CUs to have had a much larger impact than FTAs.     

Financial factors and the margins of trade: Evidence from cross-country firm-level data

Using a large cross-country, firm-level database containing 5000 firms in 9 developing and emerging economies, we study how financial factors affect both firms' export decisions and the amount exported by firms. First, our results highlight the importance of the impact of firms' access to finance on their entry decision into the export market. However, better financial health neither increases the probability of remaining an exporter once the firm has entered, nor the size of exports. Second, we find that financial constraints create a disconnection between firms' productivity and their export status: productivity is only a significant determinant of the export decision if the firm has a sufficient access to external finance. Finally, an increase in a country's financial development dampens this disconnection, thus acting both on the number of exporters and on the exporters' selection process. These results contribute to the literature documenting the role of fixed costs and of the extensive margin of trade in total trade adjustment, and provide micro-level evidence of the positive impact of financial development on trade found by previous literature.     

TRADE LIBERALIZATION AND FIRM PERFORMANCE: THE CASE OF THAILAND

After the Asian Financial Crisis, Thailand's trade policy has been driven by the proliferation of free trade agreements (FTAs). We use firm‐level data to estimate the effects of reductions in tariffs applied to Thai imports on Thai firms. Reductions in Association of Southeast Asian Nations (ASEAN) tariffs were associated with increasing firm employment and exports, lower ASEAN‐China import tariffs were associated with increasing firm employment, while lower tariffs from the Japan‐Thailand FTA were associated with reductions in firm employment and increasing likelihood of International Organization for Standardization (ISO) certifications. FTAs were associated with a decrease in firm R&D spending. (JEL F1, F2, F6)