The Effects of South Korea’s Free Trade Agreements on Market Integration: A Survival Analysis Approach

Purpose – This study investigates the impact of free trade agreements (FTAs) on market integration between South Korea and its FTA partners. While previous research primarily relies on the law of one price (LOP) or purchasing power parity (PPP) frameworks to assess integration, these traditional approaches often fail to capture partial or dynamic adjustments. This study introduces an alternative perspective by focusing on the duration of High Price Differential Episodes (HPDEs), where price gaps exceed a trade-cost threshold. Design/Methodology – This study employs Survival Analysis to examine whether the HPDE duration is shorter across 40 countries that have signed FTAs with South Korea. This approach captures not only whether prices converge but also how quickly large deviations are corrected following FTA implementation. Two different threshold values are employed to represent trade costs, and control variables are incorporated to ensure robust results. Findings – The findings reveal that FTAs are significantly associated with shorter HPDE durations, indicating enhanced market integration. However, this effect is more prominent among countries that experience medium to high trade volume growth after the FTA. This suggests that the impact of FTAs on market integration is conditional on the degree of trade expansion. Originality/value – This study offers an innovative methodological approach to assessing market integration by focusing on the speed of price differential correction rather than long- run convergence. It provides new empirical evidence on the dynamic effects of FTAs, offering practical insights for policymakers seeking to evaluate and design trade agreements that foster deeper market integration.