Assessing the Impact of China Shocks on the Trade Creation Effect in ASEAN
Policymakers in ASEAN countries are concerned that an explosive increase in imports from China has dampened intra-ASEAN trade. This study empirically examines the effect of imports from China on intra-ASEAN trade. We employ a two-step approach. First, we estimate the product-level gravity equation with the full set of fixed effects on intra-ASEAN trade. Second, we regress the estimates of importer-product-year-fixed effects on the share of imports from China that constitute all imports in addition to intra-ASEAN tariffs. As is consistent with the concern above, we found that from 2000 to 2015, increases in ASEAN imports from China reduced intra-ASEAN trade by 20%. Such an increase in imports from China is equivalent to the rise of intra-ASEAN tariffs by 20%.
Keywords: China shocks, ASEAN, Trade creation effect
JEL classification: F15, F53
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