Paper Information

Journal:   IRANIAN JOURNAL OF TRADE STUDIES (IJTS)   WINTER 2011 , Volume 15 , Number 57; Page(s) 155 To 182.
 
Paper: 

TRADE CREATION AND TRADE DIVERSION IN THE SELECTED ASIAN TRADE ORGANIZATIONS

 
 
Author(s):  HOSSEINI NASAB E., MOTAGHI SAMIRA, MOTAGHI AFSHIN, FATHI YAHYA
 
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Abstract: 
The stated basic goal of regional trade organizations (agreements) is reducing tariff barriers and improving welfare at the regional level. But there are serious questions regarding the effect of these agrreements on trade in member versus non-member countries If the agreement yields positive trade effect in member countries, the phenomenon is called “trade creation". If this positive effect comes at the expense of negative effect on non-member countries, the phenomenon is called “trade diversion”. Trade creation is welfare improving, while trade diversion is welfare reducing.
This paper is an attempt to measure the extent of trade diversion and trade creation in three Asian organizations, namely, the Economic Cooperation Organization (ECO), Persian Gulf Cooperation Council (GCC) and ASEAN. The model used is an extended version of the relatively well known gravity model and a total of 26 member countries were considered for data completion purposes over the time span of 2002-2006. The findings reveal an incidence of trade diversion in all three cases, implying that trade agreements are welfare reducing.
JEL Classification: F51, L42.
 
Keyword(s): TRADE CREATION, TRADE DIVERSION, REGIONAL TRADE AGREEMENTS, GRAVITY MODEL, WELFARE
 
References: 
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