Trade Impact of the India-ASEAN Free Trade Agreement (FTA): An Augmented Gravity Model Analysis (original) (raw)
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The Asia-Pacific Research and Training Network on Trade (ARTNeT) is aimed at building regional trade policy and facilitation research capacity in developing countries. The ARTNeT Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about trade issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. ARTNeT working papers are available online at www.artnetontrade.org. All material in the working papers may be freely quoted or reprinted, but acknowledgment is requested, together with a copy of the publication containing the quotation or reprint. The use of the working papers for any commercial purpose, including resale, is prohibited.
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The emergence of new Asian regionalisms such as ASEAN+3 (China, Korea and Japan) and the proposed ASEAN+5 (ASEAN+3 plus Australia and New Zealand) and other bilateral, plurilateral and multilateral free trade agreements in recent years requires research into these important developments and their underlying fundamental trade-growth causation. The paper extends the gravity theory to time-series data and applies a new flexible modelling approach to construct a simultaneous-equation model of trade and growth for the ASEAN and the East Asia 3. Using data from the World Bank national accounts and CHELEM regional and international trade over the period 1968-2000, the paper then estimates the model by both standard (OLS and 2SLS) and improved estimation methods to provide superior MSE impact estimates. Implications of the findings for ASEAN+3's economic integration, trade policy and prospects for trade and welfare improvement for this FTA will also be discussed.
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Regionalism in South Asia, through formation of regional and bilateral trading agreements, dates back to mid 1990s. The objective of this study is to assess the effects of various forms of trade agreements on bilateral trade of South Asia. Gravity model of international trade was used as the analytical tool and the effects of the World Trade Organization (WTO), Regional Trade Agreements (RTA) such as SAFTA, EU, ASEAN, BIMSTEC and NAFTA, and Bilateral Trade Agreements (BTA) were estimated. Three types of BTAs were included; between two South Asian countries, between a South Asian country and a country not in the region, and between two non-South Asian countries. Distance between the trading partners, sharing of common language, and colonial ties were the remaining explanatory variables included in the models. Cross sectional data covering 2555 bilateral trade for the year 2012 were used for the estimation and the data were extracted from the gravity databases of the Asia Pacific Research and Training Network, the World Bank and the WTO. The models were estimated using Ordinary Least Squares including importer and exporter fixed effects. The results of the estimation suggest that sharing of a common language, sharing a common colony, and membership of WTO positively and significantly affect export values and the effect of geographical distance, as expected, on the same has a negative effect. The memberships in BTA and RTA have mixed effects. Among RTAs used in the study, only the coefficient for EU is statistically significant. SAFTA, ASEAN, BIMSTEC and NAFTA do not show significant effects on bilateral trade. The effects of all BTAs are positive and significant and they indicate that BTAs within South Asia enhance its regional trade greater than the BTAs with non-members. These results suggest that proliferation of BTAs within South Asia helped in expanding regional trade.
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Asian Journal of Management Studies, 2021
This study investigates the desirability of the South Asian Free Trade Area (SAFTA), considering its potential in generating trade creation and trade diversion effects by controlling the trade persistence, which is often ignored by the previous studies. In this regard, dynamic gravity models on South Asian imports, exports, and total trade are used over the period from 2003 to 2013. Results for the two-step system GMM estimator confirmed the desirability of SAFTA with the presence of significant intra-bloc and extra-bloc trade expansions. Further, SAFTA depicted a significant anticipation effect as trade expansions were significant even one year prior to its implementation, and they continued to be significant until 2009. Further, this study empirically confirms the potential of SAFTA in mitigating the region’s political tension, especially when implementing the trade strategy. Thus, it is recommended to bring SAFTA to its full potential by further reducing tariffs and removing sens...
DRAFT From SAPTA to SAFTA: Gravity Analysis of South Asian Free Trade
South Asian Association for Regional Cooperation (SAARC) was established in 1985 and South Asian Preferential Trading Arrangement (SAPTA) came into existence in 1995. Four rounds of trade negotiations have already been concluded under SAPTA by 2002. SAARC countries have signed the framework agreement on South Asian Free Trade Area (SAFTA) in 2004 and SAFTA will come into effect at the start of 2006. We use the gravity model analysis to evaluate the progress of SAPTA and the prospects for SAFTA using trade data for 1996-2002. Both panel data and cross sectional data analysis have been used. Our gravity model results show that there is a significant trade creation effect under SAPTA and find no evidence of trade diversion effect with the rest of the world. This supports the proposition that further regional integration may bring about substantial benefits to SAARC region and South Asian Free Trade Area is most likely to promote intra-regional trade through further dismantling of tariff and other non-tariff barriers to trade among members.