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Do Free Trade Agreements Increase The New Goods Margin? Evidence from Korea

Author

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  • Sang-Wook (Stanley) Cho

    (School of Economics, UNSW Business School, UNSW)

Abstract
This paper analyzes the role of the new goods margin, or the extensive margin in the growth of trade between Korea and countries which it signed free trade agreement with. Using the methodology initiated by Kehoe and Ruhl (2013), I look at the set of least-traded goods (or “new” goods) that constitute the bottom decile of trade value, and measure its growth rate between 1995 and 2013, a period during which various bilateral trade agreements came into effect. On average, these new goods account for 26 percent of Korea’s exports and 31 percent of Korea’s imports after the free trade agreement. When compared to a control group of main trade partners with no FTAs, I find that FTA had more impact on the growth of new goods in imports rather than in exports. This may be due to the fact that Korea’s tariff barriers were relatively higher than its FTA partner countries. Despite growth in extensive margin, the main avenue of growth in trade came from growth in intensive margin.

Suggested Citation

  • Sang-Wook (Stanley) Cho, 2016. "Do Free Trade Agreements Increase The New Goods Margin? Evidence from Korea," Discussion Papers 2016-02, School of Economics, The University of New South Wales.
    • Handle: RePEc:swe:wpaper:2016-02
    as

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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2016-02.pdf
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    References listed on IDEAS

    as
    1. Timothy J. Kehoe & Kim J. Ruhl, 2013. "How Important Is the New Goods Margin in International Trade?," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 358-392.
    2. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
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    6. Chingunjav Amarsanaa & Yoshinori Kurokawa, 2021. "The Extensive Margin of International Trade in a Transition Economy: The Case of Mongolia," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(4), pages 648-673, December.
    7. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 441-487.
    8. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
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    11. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Free trade agreement; Extensive margin; Intensive margin; Korea;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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