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Free Trade Agreements And Bridgehead Effect: Evidence From Korea–Chile Fta

Author

Listed:
  • KICHUN KANG

    (Yeungnam University, School of Economics & Finance, 280 Daehak–Ro, Gyeongsan, Gyeongbuk 38541, Korea)

  • PHYLLIS KEYS

    (Morgan State University, Earl G. Graves School of Business & Management, 1700 E Cold Spring Ln, Baltimore, MD 21251, USA)

  • YOON S. SHIN

    (Loyola University Maryland, Sellinger School of Business & Management, 4501 N Charles St, Baltimore, MD 21210, USA)

Abstract

Recent literature on the dynamics of export destinations has argued that firms export their products to new markets that are geographically close and culturally related to their previous export destinations. A modified version of [Melitz, M (2003). The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica, 71(6), 1695–1725.] model suggests that a preferential trade agreement may provide inefficient firms with opportunities to export their products to third destination countries. This paper finds that new Korean products have been exported to the Chile market because of reductions in Chilean tariffs and the experience gained from exporting to the Chilean market has increased the likelihood of subsequent export to other countries in South America. The paper provides direct evidence that a free trade agreement (FTA) can serve as a stepping stone to other markets.

Suggested Citation

  • Kichun Kang & Phyllis Keys & Yoon S. Shin, 2016. "Free Trade Agreements And Bridgehead Effect: Evidence From Korea–Chile Fta," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(05), pages 1-17, December.
    • Handle: RePEc:wsi:serxxx:v:61:y:2016:i:05:n:s0217590815500988
    DOI: 10.1142/S0217590815500988
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