New publication in the Open Economies Review  [14.11.22]

In this paper, Benjamin Jung applies the gravity equation to quantify the trade effects of this agreement. The gravity equation in international trade is intuitive as it is inspired by Newton's Law of Gravitation and well founded in trade theory. It is a major tool in empirical trade to quantify the effects of trade policy.

The EU-South Korea Free Trade Agreement, which entered into force in 2015, is an example of so-called "deep" regional trade agreements that cover non-tariff measures such regulatory barriers, services, intellectual property rights, and bilateral investment on top of tariffs.

Benjamin Jung uses a novel dataset (Monteiro, 2020), which includes information about international and intranation trade flows for a large set of countries. He explores the heterogeneity in the effects of this agreement on bilateral trade in manufacturing goods (i) across time (anticipation and phasing-in/ delayed adjustment), (ii) across country pairs of EU members countries and South Korea, and (iii) across trading directions within these pairs (exports of EU members to South Korea versus imports of EU members from South Korea).

He finds that the positive trade effect after the announcement of trade negotiations vanished one year prior to entry into force of the agreement. Moreover, on average exports of EU countries to South Korea rise, while imports of EU countries are not significantly affected. Additional imports caused by the agreement are larger for those EU countries where South Korea accounted for a large share of extra-EU imports already before the agreement.

The paperis available online here https://doi.org/10.1007/s11079-022-09690-6 or as a PDF here https://link.springer.com/content/pdf/10.1007/s11079-022-09690-6.pdf.

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