Effects of monetary and trade freedom, logistic performance and trade creation on China-ASEAN trade flow

Since 2019, ASEAN has become China’s largest trade partner. China’s trade intensity with ASEAN has been getting closer and closer, especially after the establishment of China-ASEAN free trade area (CAFTA). China-ASEAN bilateral commodity trade flows play a crucial role in promoting economic growth in China and in ASEAN countries. Thus, it is of great significance to study China’s bilateral commodity trade flows with ASEAN. The first objective examines the role of monetary freedom and trade liberalization in promoting China-ASEAN trade flows. Based on feasible generalized least squares (FGLS) estimation and a panel data set of eight ASEAN countries in 2001-2022, it is found that ASEAN’s monetary freedom and trade liberalization significantly promote China-ASEAN bilateral trade flows. The second objective analyzes the impact of logistics performance and trade facilitation improvement on China’s exports and imports with ASEAN. Based on feasible generalized least squares (FGLS) estimation and a panel data set of six ASEAN countries in 2009-2019, it is found that the increase of logistics performance and trade facilitation contributes to the trade growth of China’s exports to and imports from ASEAN countries. The third objective quantifies the trade creation effect of CAFTA on China-ASEAN trade flows. By applying propensity score matching with difference-in-differences for China’s trade data with ASEAN countries during 2000-2021, this research reveals that CAFTA has a significant trade creation effect on China’s trade flows with ASEAN, China’s exports to ASEAN and China’s imports from ASEAN. The trade creation effect of CAFTA in China’s imports from ASEAN is slightly larger than that in China’s exports from ASEAN. In addition, it finds that the reduction of tariff rate under CAFTA significantly stimulates the trade flows between China and ASEAN countries. The empirical of this research can provide references to decision makers in both China and ASEAN to make relevant policies to reduce more trade barriers, and to promote trade flows between China and ASEAN. The trade effects value of CAFTA also provides reference value for other developing countries who do South-South trade.

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