Your browser does not support the PubReader view.
Go to this page to see a list of supporting browsers.
Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 19, No. 4, pp.381-404
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2006
Received 13 Jun 2006 Revised 02 Sep 2006

Industrial Structure, Regional Trade Bias, and China's FTA with Korea and Japan

Taegi Kim ; Jun-Heng Zhan
Professor, Department of Economics, Chonnam National University, Tel: +82-62-530-1455, Fax: +82-62-530-1469 tgkim@chonnam.ac.kr
Assistant Professor, Department of International Trade, Huaqiao National University of China

JEL Classfication: F14, F15

Abstract

This paper investigates the potential for China's FTA with Korea and Japan. We examine the similarities of industrial structures and regional trade biases among the three countries as indictors for establishing a China-Korea-Japan FTA. Even though the three countries are at very different developmental stages, their industrial structures will converge over time and their regional trade bias is high. Regression results of the gravity equation show that the trade volume among the three countries will increase. Based on our analysis of industrial similarities, we suggest a step-by-step procedure for the economic integration of Northeast Asia. A successful China-Korea-Japan FTA can be realized through the initial establishment of Korea- Japan and China-Korea FTAs, followed by subsequent negotiations between these two FTAs.

Keywords:

China, Industrial structure, Regional trade bias, FTA

Acknowledgments

The authors would like to thank participants in the 2006 Winter Conference of the Korean International Economic Association held at Sogang University for their helpful comments on earlier version of the paper.

References

  • Aquino, A. “Intra-Industry Trade and Inter-Industry Specialization as Concurrent Sources of International Trade in Manufactures.” Weltwirtschaftliches Archiv 114 (No. 2 1978): 275-96. [https://doi.org/10.1007/BF02696475]
  • Balassa, B. Economic Development and Integration. Me´xico: Centro de Estudios Monetarios Latinoamericanos, 1965.
  • Balassa, B. “Trade Creation and Trade Diversion in the European Common Market.” Economic Journal 77 (No. 305 1967): 1-21. [https://doi.org/10.2307/2229344]
  • Bergstrand, Jeffrey H. “The Heckscher-Ohlin-Samuelson Model, the Linder Hypothesis and the Determinants of Bilateral Intra-Industry Trade.” Economic Journal 100 (No. 403 1990): 1216-29. [https://doi.org/10.2307/2233969]
  • Bhagwati, Jagdish N. “Trade-Diverting Customs Unions and Welfare-Improvement: A Clarification.” Economic Journal 81 (No. 323 1971): 580-7. [https://doi.org/10.2307/2229850]
  • Cabinet Office. Toward Trade and Investment Liberalization among China, Japan, and Korea - China’s WTO Accession and Regional Integration in Northeast Asia. Government of Japan, 2001.
  • Cheong, Inkyo. East Asian Economic Integration: Recent Development of FTAs and Policy Implications. Policy Analyses 02-02, Korea Institute for International Economic Policy, 2002.
  • Deardorff, Alan V. “Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?” in J. Frankel (ed.), The Regionalization of the World Economy. Chicago: University of Chicago Press. 1998.
  • Elliott. R. J. R., and Ikemoto, Kengo. AFTA and the Asian Crisis: Help or Hindrance to ASEAN Intra-Regional Trade? Discussion Paper Series 0311, School of Economics, The University of Manchester, 2003.
  • Feenstra, Robert C., Lipsey, Robert E., Deng, Haiyan, and Ma, Alyson C. World Trade Flows, 1962-2000 (CD-ROM). http:// www.nber.org/data, NBER-UN Trade Data, 2004. [https://doi.org/10.3386/w11040]
  • Frankel, Jeffrey A., and Romer, David. “Does Trade Cause Growth?” American Economic Review 89 (No. 3 1999): 379-99. [https://doi.org/10.1257/aer.89.3.379]
  • Frankel, Jeffery A., Stein, Ernesto, and Wei, Shang-Jin. Regional Trading Blocs in the World Economic System. Washington DC: Institute for International Economics, 1997.
  • Gleditsch, Kristian S., and Ward, Michael D. “Measuring Space: A Minimum Distance Database.” Journal of Peace Research 38 (No. 6 2001): 749-68. [https://doi.org/10.1177/0022343301038006006]
  • Greenaway, David, and Chris, Milner. The Economics of Intra-Industry Trade. Oxford: Basil Blackwell Ltd, 1986.
  • Grubel, H. G., and Lloyd, P. J. Intra-Industry Trade. London: Macmillan, 1975.
  • Haveman, John. D. Industry Classifications. http://www.haveman.org/, 2005.
  • Helpman, E., and Krugman, P. R. Market Structure and Foreign Trade. Cambridge, Mass: M.I.T. Press. 1985.
  • Ishido, Hikari. Vertical Intra-Industry Trade and Foreign Direct Investment in East Asia. RIETI Discussion Paper Series 03-J-009, Research Institute of Economy, Trade and Industry, 2003.
  • Kemp, M. C., and Wan, H. “An Elementary Proposition Concerning the Formation of Customs Unions.” Journal of International Economics 6 (No. 1 1976): 95-7. [https://doi.org/10.1016/0022-1996(76)90025-8]
  • Kim, Taegi. “Intra-Industry Trade: The Korean Experience.” International Economic Journal 6 (No. 2 1992): 95-113.
  • Kim, Taegi, and Chang, Sun-Mee. “The Effects of Korea-U.S. Trade on Korean Economic Growth: Technology Spillovers through Trade.” Korean Economic Studies 9 (No. 2 2002): 5-28 (in Korean).
  • Kim, Taegi, and Kim, Sangho. “Changing Comparative Advantage and Intra-Industry Trade in Korean Manufacturing Industries.” Korean Economic Review 14 (No. 1 1998): 173-87.
  • Krueger, Anne O. “Free Trade Agreements versus Customs Unions.” Journal of Development Economics 54 (No. 1 1997): 169-87. [https://doi.org/10.1016/S0304-3878(97)00032-1]
  • Krueger, Anne O. Trade Creation and Trade Diversion under NAFTA. NBER Working Paper No. 7429, 1999. [https://doi.org/10.3386/w7429]
  • Lee, Hong-Sik, Lee, Jong-Hwa, Shin, Kwan-Ho, and Wang, Yun- Jong. The Effects of Korea-China-Japan FTA on Economic Growth. Research Report of KIEP, Korea Institute for International Economic Policy (KIEP), 2004 (in Korean).
  • Lipsey, Richard G. “The Theory of Customs Unions: Trade Diversion and Welfare.” Economica 24 (No. 93 1957): 40-6. [https://doi.org/10.2307/2551626]
  • OECD. OECD Science, Technology, and Industry Scoreboard 2003 - Towards a Knowledge-Based Economy. OECD Directorate for Science, Technology and Industry (DSTI), 2003.
  • OECD. STAN Indicators Documentation. http://www.oecd.org/, 2005.
  • Okuda, Satoru. Deepening Interdependence in East Asia: Deepening Intra-Industry Trade of Japan and Its Bilateral FTAs. Working Paper Series 03/04-No.2, IDE APEC Study Center, 2004.
  • Park, In-Won. “A Study on Economic Validity of East Asian Economic Integration: Using CGE Model.” International Economic Studies 7 (No. 2 2001): 31-55 (in Korean).
  • Sautter, Hermann. “Tendencies of Regionalization in World Trade between 1938 and 1970.” in H. Giersch (ed.), International Division of Labor, Problems, and Perspective. Tubingen: J. C. B. Mohr, pp. 483-525, 1974.
  • Schaaper, Martin. An Emerging Knowledge-Based Economy in China? Indicators from OECD Databases. STI Working Paper 2004/4, Statistical Analysis of Science, Technology and Industry, OECD, 2004.
  • Scollay, Robert, and Gilbert, John P. New Regional Trading Arrangements in the Asia Pacific? Washington D.C.: Institute for International Economics, 2001.
  • Verdoorn, P. J. “The Intra Block Trade of Benelux.” in E. A. G. Robinson (ed.), Economic Consequences of the Size of Nations. London, pp. 291-321, 1960. [https://doi.org/10.1007/978-1-349-15210-0_19]
  • Viner, Jacob. The Customs Union Issue. New York: Carnegie, 1950.
  • World Bank. World Development Indicators. 2005.