Abstract
Who benefits of trade with China? Examining the effects of free trade agreements on trade flow with China using an adjusted gravity model
Highlights
With the emergence of free trade agreements between countries, questions are raised regarding whether these agreements increase trade between the participating countries or bring them any benefits and who benefits
The model presents a positive correlation in bilateral trade in terms of the size of the regions macroeconomically as follows: Tij = A(YiYj)/(Dij), where Tij is the bilateral trade flow, Yi and Yj stand for the gross domestic product (GDP) values of i and j, Dij is the distance between the countries, and A is a constant
Since it was found that FTA had un significant connection in export to China but statistically significant import from China from countries that have entered into an FTA with China, hints that China is the main beneficiary from the free trade, with western countries
Summary
With the emergence of free trade agreements between countries, questions are raised regarding whether these agreements increase trade between the participating countries or bring them any benefits and who benefits. Free trade agreements eliminate restrictions on imports and exports between countries. Many countries participate in trade, and throughout history, nations have benefitted by taking part in international trade (Bergstrand, 1985; Markusen, 2004; Nguyen, 2019; Do et al, 2020). Various studies have demonstrated that trade flow follows the heuristic model of the gravity theory (Linnemann, 1966; Tinbergen, 1962). The quantification of bilateral trade consists of prosperous economic growth and overcoming income and trade barriers, the latter of which generally consists of distance, transport costs, trade agreements and cultural differences The quantification of bilateral trade consists of prosperous economic growth and overcoming income and trade barriers, the latter of which generally consists of distance, transport costs, trade agreements and cultural differences (e. g. Baier & Bergstrand, 2007; Bunt & Klaasen, 2007; Grant & Lambert, 2008; Beugelsdijk, Ambos & Nell, 2018; Shahriar, Qian & Kea, 2019)
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