Assessing the effects of trade regionalism in East Asia – evidence from augmented gravity models

ABSTRACT

This paper investigates the effects of trade regionalism in East Asia from 1995 to 2018, by applying a series of gravity models. An initial, basic gravity model is repeatedly augmented to account for a range of economic, geographical, cultural, and above all institutional factors representing free trade agreements in effect. Unlike previous studies, this investigation distinguishes between the bilateral and multilateral measures of regional trading arrangements. Two interesting findings are reported. First, the results confirm the impact of trade regionalism on the export flows between the economies of East Asia in the period under study. Second, the effects of multilateral trading agreements vary greatly depending on the agreement and on the particular country’s range of influence, in particular cases showing no sufficient economic benefits. Overall, the results point to the complementarity of bilateral and multilateral trading arrangements in the region and to the emergence of a certain distinctive model of cooperation and integration in East Asia – which has been underpinned during the COVID-19 pandemic by the conclusion of the Regional Comprehensive Economic Partnership (RCEP), and which will be further verified in the post-COVID character of global trade and regional trading arrangements.

KEYWORDS:

• Trade regionalism
• East Asia
• gravity model
• COVID-19

JEL CLASSIFICATION:

• C51
• F10
• F15

Acknowledgement

I thank Professor Fredj Jawadi for helpful comments and suggestions on earlier draft of this paper, as well as Professor Mark Vancauteren, a discussant at the 6th International Symposium in Computational Economics and Finance (ISCEF, Paris) 2020, where an earlier version of this paper was presented. I also thank other participants of the 6th International Symposium in Computational Economics and Finance (ISCEF) in Paris and the Eurasia Business and Economics Society’s (EBES) 33^st Conference 2020 for their suggestions, comments and insightful questions which greatly helped to improve this study.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 Parameter estimates with logarithmic explanatory variables are interpreted as elasticity by virtue of identity: $E=\frac{\mathrm{\partial }f\left(x\right)/\mathrm{\partial }x}{(f\left(x\right)}x=\frac{\mathrm{\partial }lnf\left(x\right)}{\mathrm{\partial }lnx}.$ Parameter estimates for non-logarithmic zero-one variables are interpreted as semi-elasticity by virtue of: $SE=\frac{\mathrm{\partial }f(x)/\mathrm{\partial }x}{(f(x)}x=\frac{\mathrm{\partial }lnf(x)}{\mathrm{\partial }lnx}.$ The percentage change in the value of the dependent variable is estimated on the basis of the definition of the natural logarithm, i.e. identity $loga=b\iff exp(b)=a$ , which is calculated according to the formula $(exp(SE)-1)100\mathrm{\%}$.

Additional information

Funding

This work was supported by the National Science Center, Poland under Grant “East Asia in regional cooperation and governance” [number DEC-2013/09/B/HS4/01147].