Determinants of trade flows in apec member economies

Nguyễn Khánh Doanh Tạp chí KHOA HỌC & CÔNG NGHỆ 81(05): 45 - 50

45

DETERMINANTS OF TRADE FLOWS IN APEC MEMBER ECONOMIES

Nguyen Khanh Doanh*

Thainguyen University of Economics and Business Administration - TNU

ABSTRACT

This paper attempts to analyze the determinants of trade flows among APEC member economies.

Using the panel data analysis, the empirical results show a number of robust findings. First, GDP

is one of the most important determinants of trade flows among APEC economies. Second,

membership in an FTA would likely lead to an increase in trade among the member countries.

Third, countries speaking common languages tend to trade more with each other. Fourth, distance

remains a hindrance to trade flows even though technological innovations continue to spark

reductions in transport costs. Fifth, countries having colonial relationship or sharing the same

border have tendency to trade more with each other. Finally, for APEC economies, it might be that

the economies-of-scale effect is greater than the absorption effect, which allows the advantages of

economies of scale to be fully exploited. Efforts to increase the GDP of APEC member economies,

enhance social infrastructure, improve language ability and reduce the cultural differences are

suggested as remedies for the obstacles to freer flow of trade in the region.

Keywords: Trade Flows, Fixed Effects Model, Random Effects Model, APEC

INTRODUCTION*

Economists have recognized that international

trade has made significant contribution to and

serve as an engine for economic growth. The

major gains for countries liberalizing trade

could be realized through improved efficiency

as a result of greater competition,

specialization and economies of scale,

increased availability of imported inputs, and

enhanced access to foreign technology. In

terms of this vital contribution, member

economies of the Asia-Pacific Economic

Cooperation (APEC) are not exceptional

since international trade is an important

economic dynamic in this region.

Founded in 1989, APEC aims at promoting

free trade and economic cooperation

throughout the Asia-Pacific region. With a

population of about 2.7 billion people, APEC

made up 50.1 percent of world GDP in 20094

.

In terms of trade performance, the member

economies of APEC accounted for 39 percent

of world exports and 40 percent of world

imports in 19905

. This figure increased to

*

4

Based on the data from the United Nations Statistics

Division

5

Based on data from the World Economic Outlook

Database - IMF

45.6 percent and 45.4 percent respectively in

2009. Given the increasing importance of

APEC member economies in the world trade,

it is important to identify the main sources of

international trade in this region.

The main purpose of this paper is to

investigate the determinants of trade among

APEC member economies. Therefore, it is

guided by the following research objectives:

To analyze the factors that affect the trade

flows among APEC member economies.

To determine whether or not an FTA

membership has the positive effect on trade flows.

To derive policy implications based on the

empirical analysis.

The paper is structured as follows: Section 2

presents the econometric method, including

the fixed effects model and random effects

model, which is used for the analysis in this

paper. Section 3 describes the data used for

the sample. Section 4 displays and interprets

the regression results. Concluding remarks

and policy implications are included in the

final section.

THEORETICAL FRAMEWORK

2.1. Analytical model

To determine the trade performance of APEC

member economies, I use the standard gravity

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