Lee, Jong-Wha and Shin, Kwanho (2005): Does Regionalism Lead to More Global Trade Integration in East Asia?
Download (306Kb) | Preview
Since early 1999, global trade liberalization has moved to the wayside as regional preferentialtrade agreements have become the preferred choice in East Asia. Does this shift toward regional trade agreements (RTA) suggest that global trade and welfare levels will be raised? Regional preferential trade arrangements, in contrast to unilateral trade liberalization, may well cause both 'trade creation’ and ‘trade diversion’. If an RTA raises trade and welfare among its members but hurts the welfare of non-members, its net effect on global trade and welfare becomes ambiguous. The hypothesis of ‘natural trading partners’ suggests that RTAs comprising natural trading partners are more likely to create trade between member countries, and less likely to divert trade from non-member countries, and thus leading to large improvements of economic welfare. Based on the existing RTAs in the world, we find that if an RTA forms between geographically proximate countries (measured either by distance or border), trade significantly increases between member countries. At the same time, we find that geographical proximity also contributes to increasing trade between a member and the rest of the world. We apply our findings to East Asia and examine how the existing or proposed East Asian trading blocs affect intra-bloc and extra-bloc trade, and thereby global trade. We find the East Asian RTAs are likely to create more trade among members without diverting trade from non-members.
|Item Type:||MPRA Paper|
|Original Title:||Does Regionalism Lead to More Global Trade Integration in East Asia?|
|Keywords:||Regionalism; Global trade integration; Trade creation; Trade diversion|
|Subjects:||F - International Economics > F1 - Trade > F15 - Economic Integration|
|Depositing User:||Kwanho Shin|
|Date Deposited:||08. Nov 2006|
|Last Modified:||11. Feb 2013 20:46|
Aitken, N.D., 1973, “The Effects of the EEC and EFTA on European Trade: A Temporal Cross-section Analysis,” American Economic Review 63: 881-92. Anderson, James and Eric van Wincoop, 2003, “Gravity with Gravitas: A Solution to the Border Puzzle”, American Economic Review, 93(1), 170-192. Baier, Scott L., and Jeffrey H. Bergstrand, “Economic Determinants of Free Trade agreements,” Journal of International Economics, vol. 64, no. 1, October 2004a, 29-63. Baldwin, R., and A. Venables, 1995, “Regional Economic Integration”, Handbook of International Economics edited by G. Grossman and K. Rogoff, Amsterdam: Elsevier Science Publishers. Bergstrand, Jeffrey H., 1985, “The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidences,” The Review of Economics and Statistics, Vol. 67, Issue 3, pp. 474-481. Bhagwati, Jagdish, 1993, “Regionalism and Multilateralism: an overview,” Chapter 2 in New Dimensions in Regional Integration edited by Jaime De Melo and Arvind Panagariya, Centre for Economic Policy Research (CEPR), Cambridge University Press, pp. 22-51. Bhagwati, Jagdish and Arvind Panagariya, 1996, “Preferential Trading Areas and Multilateralism-Strangers, Friends, or Foes?” Chapter 1 in The Economics of Preferential Trade Agreements edited by Jagdish Bhagwati and Arvind Panagariya, The AEI Press and Center for International Economics, University of Maryland, pp. 1-78. Bhagwati, Jagdish, David Greenaway, and Arvind Panagariya, 1998, “Trading Preferentially: Theory and Policy,” The Economic Journal 108: 1128-1148. Evenett, S. J. and Keller W, 2002, "On Theories Explaining the Success of the Gravity Equation," Journal of Political Economy, Vol 110 2, 281-316. Feenstra, Robert C. 2002, ‘Border Effects and the Gravity Equation: Consistent Methods for Estimation’, Scottish Journal of Political Economy 49, 5: 491-506. Feridhanusetyawan, Tubagus, 2005, “Preferential Trade Agreements in the Asia-Pacific Region,” IMF Working Paper WP/05/149. Frankel, Jeffrey, 1997. Regional Trading Blocs in the World Economic System, Washington, DC: Institute for International Economics. Frankel, Jeffrey and Shang-jin Wei. 1993, “Trading Blocs and Currency Blocs”, NBER Working Paper # 4335. Frankel, Jeffrey and Shang-jin Wei. 1995, “Open Regionalism in a World of Continental Trading Blocs”, NBER Working Paper # 5272. Frankel, Jeffrey and Shang-jin Wei. 1998. “Regionalization of World Trade and Currencies: Economics and Politics” in The Regionalization of the World Economy, edited by J. Frankel. Chicago: University of Chicago Press. Frankel, Jeffrey, Ernesto Stein and Shang-jin Wei, 1995, “Trading Blocs and the Americas: The natural, the unnatural, and the super-natural,” Journal of Development Economics 47: 61-95. Kemp, Murray C. and Henry Y. Wan, Jr, 1976, “An Elementary Proposition Concerning the Formation of Customs Unions,” Journal of International Economics 6: 95- Krishna, Pravin, 2003, “Are Regional Trading Partners “Natural”?” Journal of Political Economy 111(1), 202-226. Krueger, Anne O., 1999, “Are Preferential Trading Arrangements Trade-Liberalizing or Protectionist?” Journal of Economic Perspectives 13: 105-124. Krugman, Paul, 1993, Regionalism versus Multilateralism: analytical notes,” Chapter 3 in New Dimensions in Regional Integration edited by Jaime De Melo and Arvind Panagariya, Centre for Economic Policy Research (CEPR), Cambridge University Press, pp. 58-79. Lawrence, Robert Z., 1996, Regionalism, Multilateralism, and Deeper Integration, The Brookings Institution. Lee, Jong-Wha and Innwon Park, 2005, “Free Trade Areas in East Asia: Discriminatory or Nondiscriminatory?, The World Economy, 28(1), January 2005. Lee, Jong-Wha, Innwon Park and Kwanho Shin, 2004, “Proliferating Regional Trade Arrangements: Why and Whiter?”, mimeo. Lipsey, R.G. 1957 “The theory of customs unions; trade diversion and welfare”, Economica 24, 40-46. Panagariya, A. 1997, “Preferential Trading and the Myth of Natural Trading Partners,” Japan and the World Economy, 9, 471-489. Rose, Andrew K., 2004, “Do We Really Know That the WTO Increases Trade?”, America Economic Review 94: 98-114. Summers, Lawrence, 1991, “Regionalism and the World Trading System,” a paper presented at the symposium sponsored by Federal Reserve Bank of Kansas City. Viner, Jacob, 1950, The Customs Union Issues, Carnegie Endowment for International Peace. Wonnacott, Paul, 1996, “Free-Trade Agreements: For Better or Worse?” The American Economic Review 86: 62-66. Wonnacott, Paul and Mark Lutz, 1989, “Is There a Case for Free Trade Areas?” Chapter 2 in Free Trade Areas and U.S. Trade Policy edited by Jeffrey J. Schott, Institute for International Economics, pp. 59-84.