Do Free Trade Agreements Increase the New Goods Margin? Evidence from Korea

25 Pages Posted: 24 Feb 2016 Last revised: 20 May 2018

See all articles by Sang-Wook (Stanley) Cho

Sang-Wook (Stanley) Cho

UNSW Australia Business School, School of Economics

Julian P. Diaz

Loyola University of Chicago

Date Written: August 1, 2016

Abstract

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

Cho, Sang-Wook and Diaz, Julian P., Do Free Trade Agreements Increase the New Goods Margin? Evidence from Korea (August 1, 2016). UNSW Business School Research Paper No. 2016-02B, Available at SSRN: https://ssrn.com/abstract=2736608 or http://dx.doi.org/10.2139/ssrn.2736608

Sang-Wook Cho (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Julian P. Diaz

Loyola University of Chicago ( email )

25 East Pearson Street
Chicago, IL 60611
United States

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