Evaluating Asian FTAs: What do Gravity Equation Models Tell Us?

This research evaluates the performance of free trade agreements by analyzing the determinants of trade flows of Asian economies for a panel of thirty-one countries during 2007-2014 using a Gravity model. The estimated results suggest that certain Free Trade Agreements (FTAs) negatively contribute to trade flows across the region and that GDP and population, among other factors, can explain the total trade flows. The study also finds that trade costs which uses distance as a proxy, has a significant and negative effect on trade. The results are in-line with the expectations which can be drawn by looking at trends of trade flows in Asia and thus, a case is made for smoothening trade-flows across the region by reducing tariff and non-tariff barriers; pumping in investments on transport infrastructure, and improving productivity of the partners as a whole which has positive effects on GDP and thus trade. [WORKING PAPER 152/2016]