Forces Underlying Trade Integration in the APEC Region: A Gravity Model Analysis of Trade, FDI, and Complementarity

Shigeru T. Otsubo () and Tetsuo Umemura
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Shigeru T. Otsubo: Nagoya University, Postal: Graduate School of International Development,, Nagoya University, Furo-cho, Chikusa-ku, Nagoya 464-8601, Japan
Tetsuo Umemura: University of the Ryukyus, Postal: Faculty of Law and Letters, University of the Ryukyus

Journal of Economic Integration, 2003, vol. 18, 126-149

Abstract: Accompanying the wave of liberalization in motion since the mid 1980s, trade complementarity and its underlying structure of comparative advantage have started to dictate the directions of international trade flows. The vibrant FDIexport- led Asian growth has revealed the role of FDI as a financial gravity for trade integration in the APEC region. Analyses of forces underlying trade integration using trade gravity models with dummies for regional trading arrangements, augmented by the additions of trade complementarity and FDI flows as gravity variables of emerging significance, suggest that 1) APEC is more potent in the creation of intra-regional trade compared to other regional trading arrangements (RTAs); 2) intra-regional trade generation is much more significant in North-North and North-South RTAs as compared to that for the South-South RTAs; 3) trade complementarity is a significant determinant of the directions of trade, and its significance has grown since the mid 1980s with reductions in trade distortions; and 4) inward FDI is a significant determinant of the direction of intra-APEC trade transactions.

Keywords: APEC; FDI; Gravity model; Trade complementarity; Regional trading arrangements; Integration (search for similar items in EconPapers)
JEL-codes: F02 F14 F15 F36 (search for similar items in EconPapers)
Date: 2003
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