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

Sang-Wook Cho (), Hansoo Choi () and Julián P. Díaz ()
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Hansoo Choi: Korea Institute of Public Finance
Julián P. Díaz: Loyola University Chicago

Open Economies Review, 2018, vol. 29, issue 5, 1095-1122

Abstract: Abstract We analyze the changes in the composition of bilateral trade—and more specifically, in the new goods margin—following the free trade agreements (FTAs) signed by Korea between 2004 and 2008. We find that new goods trade increased disproportionately after the FTAs came into effect, and that least-traded goods (LTG)—those accounting for the lowest 10% of trade prior to the FTAs—ended up accounting for 37% of post-FTA trade with FTA partners. In contrast, the corresponding share for a comparable group of countries that did not sign FTAs with Korea was only half as large, averaging close to 20%. We also find that only less than 2% of all least-traded products accounted for most of the growth in LTG trade, and that those goods tended to be clustered in the same industries as the intensively-traded goods. Furthermore, a larger fraction of LTG became heavily traded for the case of FTA partners than for non-FTA countries. Finally, we find evidence that least-traded imports were subject to higher pre-FTA tariff protection than other products.

Keywords: Trade liberalization; Free trade agreements; Extensive margin; New goods margin; Intensive margin (search for similar items in EconPapers)
JEL-codes: F13 F14 (search for similar items in EconPapers)
Date: 2018
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