The Effect of Free Trade Agreements on International Trade: An Empirical Analysis for Developed and Developing Countries

One of the more frequent campaign promises made by Donald Trump was the elimination of the North American Free Trade Agreement (NAFTA). Calling it “one of the worst deals ever”, he held it responsible for the unemployment of many U.S. citizens (Welker, 2017). The statement has been one of many regarding Trump’s plan to put “America first”. His plans on protection include the renegotiations or elimination of free trade agreements (FTAs), increasing import tariffs and the “Buy American-Hire American” statements. However, especially Trump’s stance on FTAs has been criticized by many economists, as it seems that there is no bigger gap between economists and politicians than on the subject of free trade (Lowenstein, 2017). 

Regarding the FTAs, Trump is going down a path which could have large consequences for the United States, but also to the related countries in the free trade agreements. On the 23rd of January 2017, the U.S. pulled out of the Trans-Pacific Partnership (TPP), which CNN dubbed as “the largest proposed free trade deal in history” (Riley, 2017). By the U.S. pulling out, the agreement cannot be ratified due to pre-arranged conditions on ratification. With the participating countries, consisting of developed and developing countries, having a combined Gross Domestic Product (GDP) of 27.4 trillion US dollars, this trade agreement could have huge consequences for the international trade of the participating countries. 

Read more: https://thesis.eur.nl/pub/38473/Huijskens-R.-388659.pdf

Suggested by: Noor Amalina Mohd Ismail (Statistician, DOSM)

ASEAN-EU - International Trade in Goods Statistics

Link: https://ec.europa.eu/eurostat/statistics-explained/pdfscache/71515.pdf

This article provides a picture of the international trade in goods between the European Union (EU) and ASEAN . It analyses the type of goods exchanged between them and the shares of each EU Member State in those exchanges. 

The countries belonging to ASEAN are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. This article is part of an online publication providing recent statistics on international trade in goods, covering information on the EU’s main partners, main products traded, specific characteristics of trade as well as background information.

Suggested by: Jamaliah Jaafar (Statistician, DOSM)

The Determinants of Exports between Malaysia and the OIC Member Countries: A Gravity Model Approach

In recent years, it is in the interest of the Malaysian government to expand its export market to the Middle Eastern countries. This can be seen in the economic blueprint of the New Economic Model (NEM) which was launched in March 2010, where a new strategy would be adopted to shift its trade dependency on the traditional markets and exploring new markets especially for exports. In the post September 11 terrorist attack that hit the U.S and in light with the on-going global economic and financial crises, a study of the Malaysia-OIC export linkages has become more relevant than ever. The focus of this research is to examine the impact of economic factors on bilateral exports between Malaysia and the OIC member countries. Using the panel estimation for gravity model, the data covers the period of 1997 to 2009.

In summary, for exports flows between Malaysia and the OIC countries, an analysis of the gravity model demonstrated that the major determinants are the size of the economies, level of openness of the economy, inflation and the exchange rates. Several policy implications can be drawn from the results of the gravity model. For one, it is vital for Malaysian policy makers to play an important role to exploit the vast market of the OIC region, such as focusing on the African region, accelerating the effort to establish the Islamic Common Market (ICM), liberalizing the economy further, and intensifying endeavours in curbing corrupt practices.

Read more: http://repo.uum.edu.my/24788/

Suggested by: Wan Aznie Fatihah Wan Abd Jalil (Statistician, DOSM)

Trade Openness in Malaysia: Evidence from Trade with ASEAN and Australasian Countries

There is a large literature that relates trade openness and economic growth. My literature survey suggests that Malaysia’s WTO accession, active participation in regional trading agreements, trade policy reform in agricultural and manufacturing sectors, government reforms encouraging economic competitiveness and lower trade cost are among the main reasons for explaining Malaysia trade performance and openness. Apart from the role that trade openness has played in Malaysia’s economy, this paper’s gravity model empirical regression results suggest that other factors such as distance, per capita income in Malaysia and its trading partner and exchange rate also explain significantly Malaysian trade performance with its regional counterparts, namely the major ASEAN and Australasian countries.

Read more: https://www.researchgate.net/publication/317821949_Trade_Openness_in_Malaysia_Evidence_from_Trade_with_ASEAN_and_Australasian_Countries


Suggested by: Shamsuhasnizam Shamsudin (Statistician, DOSM)

Determinants of Export: Empirical Study in Malaysia

Download here: http://jibe-net.com/journals/jibe/Vol_4_No_1_June_2016/6.pdf

This research aims to study the relationship of export with four determinants, namely import, inflation, foreign direct investment (FDI), and exchange rate. Sample years are 1975 to 2013. Ordinary least square (OLS) is used. Results revealed that import has positive relationship with export. This implied that Malaysia import may be an “assembly point exporter”. Electric and electrical (E&E), which is Malaysia major export component has high possibly where inputs are imported, then assembly and exported. Foreign exchange rate (domestic currency in term of foreign) has positive relationship with export, thus validating Marshall Learner hypothesis. 

Inflation has negative relationship as higher aggregate price increase cost of production and decreasing price competitiveness of export. Foreign direct investment has an inverted-U curve relationship, which give further insight into conflicting evidence of linear relationship between export and FDI. Facilities provided to promote export may attract inflow of foreign investment. However, if FDI is targeted to produce for domestic market, it may not contribute to export growth.​

Suggested by: Nurul Ainie Hamid (Statistician, DOSM)

Measuring Globalization: Better Trade Statistics for Better Policy

Economic and trade liberalization in developing countries, coupled with technological advances that have greatly lowered trade and communication costs, have fueled an explosion in the volume of international trade since the 1990s. Trade liberalization and technological advances also have enabled a tremendous expansion in the types of international transactions, including trade in services and intangibles and the development of complex global supply chains. 

The accompanying expansion of multinational companies has blurred the boundaries of national economies, and the production of manufactured goods and some services increasingly has shifted to emerging economies. While international trade in goods and services has long been expanding, the speed and scope of recent changes have given rise to the term “globalization.” Among the most pressing policy questions in the United States and other advanced economies are those concerning the impact of globalization: Has globalization fostered productivity growth and well-being in advanced economies? Or have the forces of globalization weakened key national industries, resulted in widespread worker dislocation and wage stagnation, and worsened inequality? Understanding the impacts of globalization is critical to fashioning appropriate policies in a rapidly changing world. 

But understanding its impacts requires good data, and national statistical systems were not designed to measure many of the transactions occurring in today’s global economy. 

Want to know more? Click this link: http://research.upjohn.org/cgi/viewcontent.cgi?article=1250&context=up_press


Suggested by: Jamaliah Jaafar (Statistician, DOSM)

Intra-Industry Trade in Malaysian Manufacturing Sector

Download Here: http://www.ukm.my/fep/perkem/pdf/perkemVIII/PKEM2013_1C2.pdf

As a result of rapid economic growth and increased influence of globalization in international trade activities, intra-industry trade (IIT) becomes prominent across Asia including Malaysia. Free trade agreements and creations of free trade areas have encourage increased cross border investments through production networking as well as fragmentation of production, especially in manufacturing sector. This paper attempts to examine trends and patterns of Malaysia’s IIT in manufacturing sector using the 9-digit Standard International Trade Classification (SITC) codes from 1990 - 2010. 

The IIT trends and patterns are investigated using the Grubel Lloyd (GL) Index adapted from Greenaway et. al (1995) and Fontagne and Freudenberg (1997). The result indicates that the trends and patterns of Malaysia’s manufacturing sector had gradually migrated from traditional inter-industry to intra-industry kind of trade. The average GL index of Malaysia’s manufacturing sector had been gradually increasing from a mere 0.27 in 1990 to 0.51 in 2007 before it slightly dropped to 0.46 in 2010. In terms of quality (high quality vertical IIT), the composition of Malaysia’s IIT in manufacturing sector had slightly increased from only 28.0% in 1990 to 31.5% in 2010 against other two types of IIT namely horizontal IIT and low quality IIT. 

Many factors contributed to changes in the trends and patterns in Malaysia’s IIT over the last 2 decades. Apart from import substitution and industrialization policies implemented by the government, increased international fragmentation of production, production networks, creation of ASEAN Free Trade Area (AFTA) and other regional trade agreements are the dominant factors that influenced IIT in Malaysia’s manufacturing activities.

Suggested by: Nor Afiqah Shaari (Statistician, DOSM)