Impact of ASEAN : China free trade area on trade flows

This paper estimates the impact of the ASEAN-China Free Trade Agreement on the trade flows between China and the ASEAN countries. A gravity model with FTA specification is used to estimate the treatment effect of ACFTA. Since there are other unobserved variables that correlate with both the trade flows between China–ASEAN and the decision to form ACFTA, a cross-sectional OLS regression runs the risk of having endogeneity bias due to omitted variables. Therefore, this paper applies a panel regression approach with time and country fixed effects as the main method of estimation. The hypothesis is that ACFTA will increase trade flow between member countries. However, the results indicate that ACFTA correlates with a decrease in exports from China to ASEAN countries, while ACFTA has different effects on individual ASEAN countries.