Do Free Trade Agreements Increase the New Goods Margin? Evidence from Korea
25 Pages Posted: 24 Feb 2016 Last revised: 20 May 2018
Date Written: August 1, 2016
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: Free trade agreement, Extensive margin, New goods margin, Intensive margin, Tariffs, Relative prices
JEL Classification: F13, F14
Suggested Citation: Suggested Citation