Implications Of U.S. Free Trade Agreement With South Korea

The Impact of FTA on Trade Volume and Terms of Trade between Pakistan and China

“…In the previous literature, some studies have argued in favour of FTAs (Allen et al, 1996; Bergstrand, 1985; Clausing, 2001; Crawford & Laird, 2001; Korinek & Melatos, 2009; Magee, 2008; Sapir, 2001; Robert, 2005; Wahyudi & Fithra, 2017). Meanwhile, other studies have reasoned against FTAs (Adams et al, 2003; Bhagwati, 1995; Joung et al, 2006; Khadan & Hosein, 2016; Krugman & Obstfeld, 2003; Kyoji et al, 2002; Panagariya, 1996; Romalis, 2007), with reference to the results of the FTAs in terms of trade creation and trade diversion. Although there could be some marginal differences in their methodologies, a majority of the studies incorporate the concept of trade creation as the trade volume between the members of the FTAs and trade diversion as the bilateral trade reduction from a non-FTA member country.…”

“…Krugman and Obstfeld (2003) also supported the results of Adams by examining the MERCOSUR, which consists of Argentina, Brazil, Paraguay and Uruguay, and finding that MERCOSUR is responsible for higher trade diversion as compared to trade creation. While Joung et al (2006) evaluated the FTA among China, Japan and South Korea for its economic effects on the world economy and concluded that the trade volume generated by the FTA helped in expansion of the economies of the three countries, these FTAS, on the other hand, also impacted the non-member countries negatively. Also, Romalis (2007) explores trade diversion and trade creation through methods based on elasticities, tariff change and their considerable effect on international trade volume.…”