Assessing Impacts of FTA in Thailand with Special Emphasis on Trade Creation and Trade Diversion

Abstract

This paper uses ex-post gravity analysis to examine whether Thailand’s 12 effective free trade agreements cause trade creation or trade diversion effect. The sample of the study covers 43 countries over the period of 1991-2016.

The model is specified with the aim to obtain unbiased estimates of three FTA dummy variables, representing trades within and outside the trade blocs. This study is able to analyze only 7 out of 12 total FTAs due to multicollinearity problem.

The results of this study show that AFTA has trade creation effects on international trade of Thailand with little diversion effects on exports. We found pure trade creation in exports and mild import diversion from ACFTA and AJCEP. In general, ASEAN-plus-one agreements have caused trade creation effects to Thailand's exports and some or little import diversion. On the other hand, the results suggest that bilateral free trade agreements have different trade effects. TPCEP causes pure trade creation effects on Thailand's overall trade. Results obtained from ITFTA indicate that the higher trade level from the agreement come from trade diversion effects. Regressions on JTEPA and TCFTA indicate trade contraction effects.

Therefore, this study supports the notion of trade liberalization for Thailand. The policy recommendation to Thai policy maker is that negotiations on further FTAs should be focusing on ASEAN plurilateral agreements, which tend to provide benefits to intra-bloc and extra-bloc countries.