Trade Creation and Trade Diversion Effects of ASEAN-Japan Comprehensive Economic Partnership (AJCEP)

Sammanfattning: This paper examines the impact of the ASEAN-Japan Comprehensive Economic Partnership (AJCEP) on import by studying both the trade creation and trade diversion effect. The standard gravity model is augmented and tested on a sample of 36 countries based on aggregated data from 2000 to 2015. To obtain consistent and efficient estimation results, unobserved multilateral resistance terms will be addressed and endogeneity bias in policy variables controlled by accounting for the unobservable endogeneity between the FTA variable and the error term. The estimations indicate that the impact of the AJCEP is not revealed. However, an export trade creation effect was found when the direction and magnitude of trade were considered. Finally, the results also imply that countries observe greater benefits in joining the FTA, the farther they are located from one another.