The effects of APEC on the intra-trade of members: An Empirical Study

Asia-Pacific Economic Cooperation (APEC) has evolved and is actively moving toward the goal of free and open trade. It becomes important and captures world attention because it includes the world’s two largest economies, China and the United States, which have an enormous impact on global trade. However, it is debated whether APEC is effective in achieving reduction of trade barriers in a preferential way to encourage liberalized trade and whether the increased trade among members results in less trade with nonmember countries. This paper attempts to empirically test the existence of trade creation or trade diversion by APEC, with an extended gravity model with tariff rates, exchange rates, and dummy variables to analyze the effects of APEC on intra-trade among the members, using the annual panel data of 16 selected APEC members and nonmembers for the period of 1990-2007. The panel estimation results show that the effects of APEC changed over time. It tended to have trade creating only in recent years from 2002 to 2007, fostering greater trade among trading partners and between member and nonmember economies.