Empirical Analysis of Sustainable Trade Effects of FTAs Based on Augmented Gravity Model: A Case Study of China

Bangchu Qiu, Gang Tian () and Daoming Wang
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Bangchu Qiu: College of Economics and Management, Northeast Forestry University, Harbin 150040, China
Gang Tian: College of Economics and Management, Northeast Forestry University, Harbin 150040, China
Daoming Wang: College of Innovative Business and Accountancy, Dhurakij Pundit University, Bangkok 10210, Thailand

Sustainability, 2022, vol. 15, issue 1, 1-12

Abstract: China has developed many strategies to promote sustainable trade, including accelerating the signing of free-trade agreements (FTAs). However, there is a lack of studies examining the impact of FTAs on the sustainable growth of foreign trade from a holistic perspective. This paper applies an augmented gravity model to verify the trade creation and diversion effects of China’s FTAs that are currently in effect. A panel data analysis over the period of 1995–2019 is conducted on 34 countries and regions, including China, and Poisson pseudo-maximum likelihood (PPML) is employed to test three different fixed-effects models. The results show that the trade effects differ across FTAs, with nine FTAs generally making positive contributions to China’s trade and social welfare growth, and the remaining five FTAs exhibiting varying degrees of trade diversion or contraction effects. Empirically, it is clear that participation in FTAs has contributed to the sustainable trade of China, but China still needs to take prudent action to pursue further trade liberalization in order to counter the potential threat of trade diversion.

Keywords: FTA; sustainable trade; China; augmented gravity model (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
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