An Empirical Analysis Of The Impact Of CAFTA On Bilateral Trade

On January 12010, the trade relation between China and ASEAN became unprece-dentedly close thanks to the formal establishment of the China-ASEAN Free Trade Area. The fact that six original ASEAN members and China have achieved "zero tar-iff" greatly expanded the products market both for China and for ASEAN members. However, further improvement of the free trade area has met with some resistance. Due to the similarity in the trade structure among China and ASEAN members, ASEAN members worried a lot about the impact of China’s competitive products on their trade and economies.In the circumstances, we investigate the influence of CAFTA on bilteranl trade from a empirical perspective. The purpose of the investigation is mainly to answer two ques-tions-firstly, what is the characteristics of China and ASEAN’s trade and whether these features changes in product level; secondly, whether there is significant effect of CAFTA on bilateral trade, if any, in what way, to what extent.In order to answer the questions, the research is organized as follows. Firstly, a review of the theory of free trade area as well as related empirical study of CAFTA is offered in order to provide theoretical basis for the analysis of the impact of CAFTA on bilat-eral trade and to look for possible defects in previous studies. Following that, we cal-culate the Revealed Comparative Advantage Index and Trade Complementarity Index of China and ASEAN members based on trade data at SITC 3 digit level in order to specify trade relations between China and ASEAN members. At last, extended gravity model is applied to measure the quantitative impact of CAFTA.According to the analysis, there are some conclusions to be made. First of all, there are both similarities and complementarities in the trade between China and ASEAN. The export of manufactured goods, especially machinery and transportation equip-ment as well as miscellaneous products shows great similarities, while export of pri- mary products and raw materials shows complementarities. Secondly, China has dif-ferent relationship with ASEAN members because of the differences in the economic size of ASEAN members. China, Thailand and Indonesia have similar trade structure for products under SITC7 and SITC8 since they all show comparative advantage on low technology-intensive products. However, trade between China and more devel-oped countries such as Singapore, Malaysia has showed complementarities. Thirdly, the economic gains from CAFTA vary across countries. For example, Indonesia, Ma-laysia, the Philippines, Singapore and Thailand have a greater chance to increase ex-ports to China, While Vietnam have a greater chance to increase imports from China. Fourthly, the trade creation and import diversion effect of CAFTA is significant for both China and the ASEAN, and the influence of the CAFTA changes across indus-tries. Except for agricultural products and raw materials, the establishment of CAFTA showed a significantly positive role in export of manufactured goods, chemicals products and machinery and transport equipment between China and ASEAN.