Market-Driven Trading Blocs in East Asia: Empirical Evidence from 1980 to 2000

Market-Driven Trading Blocs in East Asia: Empirical Evidence from 1980 to 2000

In this paper we apply the gravity model to provide empirical evidence of market-driven trading blocs in East Asia for the period from 1980 to 2000. Special attention is paid on the role of mainland China`s openness in shaping East Asia`s trade pattern. Several trading blocs are empirically supported from the regression. (1) Firstly, there is significant evidence of a trading bloc within a Chinese circle, including Taiwan, Hong Kong, and mainland China. Although trade flows between Taiwan and mainland China were severely suppressed before 1987, the Chinese circle as a whole is highly integrated in terms of trade, indicating the important role Hong Kong plays as a trading agent in the Chinese circle. (2) The East Asian bloc appeared in the late 1980s and became more and more significant in the early 1990s. Although the bloc phenomenon in East Asia weakened right after the Asian crisis, it re-fostered again a few years later.