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Trade Creation and Diversion Effects of Regional Trade Agreements on Commodity Trade

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  • URATA Shujiro
  • OKABE Misa

Abstract

This paper examines the impacts of regional trade agreements (RTAs) on commodity trade, with a particular focus on trade creation and diversion effects. Based on the estimation of the gravity equation for commodity trade, dealing with zero-trade flow and endogeneity problems, we analyze the impacts of various types of RTAs involving 67 countries for 20 commodities during 1980-2006. We identify that partial scope (PS) RTAs and RTAs among developing countries tend to cause trade diversion. Taking tariff rates into consideration explicitly, our results suggest that trade diversion is likely to be caused by the remaining tariffs on imports from non-members, while trade creation would be caused by various factors besides the reduction in tariff rates. As for specific RTAs, the EU is shown to have a trade creation effect in trade of agricultural commodities, while the AFTA and the NAFTA have trade creation effects in all types of machinery trade. These results seem to indicate that regional production and distribution networks in machinery have been formulated thanks to the reduction of tariffs under RTAs.

Suggested Citation

  • URATA Shujiro & OKABE Misa, 2010. "Trade Creation and Diversion Effects of Regional Trade Agreements on Commodity Trade," Discussion papers 10007, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:10007
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    Cited by:

    1. Okabe, Misa & Urata, Shujiro, 2014. "The impact of AFTA on intra-AFTA trade," Journal of Asian Economics, Elsevier, vol. 35(C), pages 12-31.
    2. Selim Inançli & Haman Mahamat Addi, 2019. "Trade Creation and Trade Diversion Effects in the Economic Community of Central African States," African Development Review, African Development Bank, vol. 31(3), pages 307-317, September.
    3. Wahyudi Setia Darma & Fithra Faisal Hastiadi, 2017. "Trade Creation and Trade Diversion Effects of the ASEAN-China Free Trade Agreement, ASEAN-Korea Free Trade Agreement, and ASEAN-India Free Trade Agreement Implementation on the Export of Indonesia's F," International Journal of Economics and Financial Issues, Econjournals, vol. 7(6), pages 51-58.
    4. Lilik Sugiharti & Rudi Purwono & Miguel Angel Esquivias Padilla, 2020. "Analysis of determinants of Indonesian agricultural exports," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(4), pages 2676-2695, June.
    5. Yose Rizal Damuri, . "East Asian Regionalism and the Multilateral Trading System ERIA," Chapters, in: Yoshifumi Fukunaga & John Riady, Pierre Sauve (ed.), The Road To Bali: ERIA Perspectives on the WTO Ministerial and Asian Integration, chapter 10, pages 111-123, Economic Research Institute for ASEAN and East Asia (ERIA).
    6. Jagdambe, S., 2018. "Impact of AIFTA on Agriculture Trade Creation & Trade Diversion: Gravity Model Analysis," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 276046, International Association of Agricultural Economists.
    7. Jagdambe, Subhash & Kannan, Elumalai, 2020. "Effects of ASEAN-India Free Trade Agreement on agricultural trade: The gravity model approach," World Development Perspectives, Elsevier, vol. 19(C).

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