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Measuring trade creation effects of free trade agreements: Evidence from wine trade in East Asia

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  • Kimie Harada
  • Shuhei Nishitateno

Abstract

East Asia has experienced an unprecedented expansion in its wine market over the past two decades. This paper examines the extent to which import tariff reductions through bilateral free trade agreements (FTAs) have contributed to an increase in wine imports to Japan, China, and South Korea. Our empirical method involves estimating an augmented version of the gravity equation by the Poisson pseudo-maximum likelihood (PPML) technique. Analyzing a panel dataset for 1990–2016 covering 27 exporters, we find that overall a 1 percentage point reduction in tariff among FTA member countries is associated with an increase in the wine import volumes by 0.042%, which is seven times higher than a similar reduction in tariff on an MFN basis. The strongest trade creation effects are founded for bottle wine. The results are robust to various specifications..

Suggested Citation

  • Kimie Harada & Shuhei Nishitateno, 2021. "Measuring trade creation effects of free trade agreements: Evidence from wine trade in East Asia," Departmental Working Papers 2021-13, The Australian National University, Arndt-Corden Department of Economics.
    • Handle: RePEc:pas:papers:2021-13
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    1. Shuhei Nishitateno, 2015. "Network Effects on Trade in Intermediate Goods: Evidence from the Automobile Industry," The Japanese Economic Review, Japanese Economic Association, vol. 66(3), pages 354-370, September.
    2. Kym Anderson & Kimie Harada, 2019. "How Much Wine Is Really Produced and Consumed in China, Hong Kong, and Japan?," World Scientific Book Chapters, in: Kym Anderson (ed.), The International Economics of Wine, chapter 15, pages 379-404, World Scientific Publishing Co. Pte. Ltd..
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    4. Jason H. Grant, 2013. "Is the growth of regionalism as significant as the headlines suggest? Lessons from agricultural trade," Agricultural Economics, International Association of Agricultural Economists, vol. 44(1), pages 93-109, January.
    5. Nishitateno, Shuhei, 2013. "Global production sharing and the FDI–trade nexus: New evidence from the Japanese automobile industry," Journal of the Japanese and International Economies, Elsevier, vol. 27(C), pages 64-80.
    6. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    7. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
    8. Mariani, A. & Napoletano, F. & Pomarici, E. & Vecchio, R., 2014. "Tariff and Non-Tariff Barriers to Wine Exports and Initiatives to Reduce their Effects," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 15(1), pages 1-20.
    9. Dale Heien & Eric N. Sims, 2000. "The Impact of the Canada-United States Free Trade Agreement on U.S. Wine Exports," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(1), pages 173-182.
    10. Andrea Dal Bianco & Vasco Ladislao Boatto & Francesco Caracciolo & Fabio Gaetano Santeramo, 2016. "Tariffs and non-tariff frictions in the world wine trade," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 43(1), pages 31-57.
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    2. Ficarra, Giovanni Maria & Millemaci, Emanuele, 2024. "CETA, an ex post analysis," MPRA Paper 119696, University Library of Munich, Germany.
    3. Adhikari, Shweta & Poudel, Dikshit & Gopinath, Munisamy, 2023. "Is Policy Greasing the Wheels of Global Palm Oil Trade?," Research on World Agricultural Economy, Nan Yang Academy of Sciences Pte Ltd (NASS), vol. 4(2), June.
    4. Adhikari, Shweta & Poudel, Dikshit & Munisamy, Gopinath, 2023. "Policy Effects on Global Palm Oil Trade: A Gravity Model Approach," 2023 Annual Meeting, July 23-25, Washington D.C. 335475, Agricultural and Applied Economics Association.
    5. Bangchu Qiu & Gang Tian & Daoming Wang, 2022. "Empirical Analysis of Sustainable Trade Effects of FTAs Based on Augmented Gravity Model: A Case Study of China," Sustainability, MDPI, vol. 15(1), pages 1-12, December.

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    More about this item

    Keywords

    wine trade; FTAs; non-tariff barriers; gravity equation;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F69 - International Economics - - Economic Impacts of Globalization - - - Other
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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