A gravity model analysis of the impact of free trade agreements on Thailand’s exports : A thesis submitted in partial fulfilment of the requirements for the Degree of Doctor of Philosophy at Lincoln University

Abstract

The proliferation of Free Trade Agreements (FTAs) has accelerated the process of economic integration at national and regional levels. Thailand is geographically located in the centre of ASEAN, which has increasingly played a pivotal role in terms of geopolitics and geoeconomics, especially during the intensification of China-US strategic competition. Therefore, Thailand is one of the most active countries in East Asia in signing bilateral and regional FTAs in order to promote its trade flows. The primary purpose of economic blocs is to reduce barriers to trade between member countries. However, the impact of FTAs on trade promotion is not unanimously positive. Hence, this study investigates the export performance of Thailand in connection to the FTAs the country has signed and other crucial factors. Based on the gravity model and a Poisson Pseudo Maximum Likelihood (PPML) estimator, this study examines the impact of FTAs on Thailand’s exports to 96 main trading partners from 1955 to 2018. The study also investigates spatial effects arising from the macroeconomic variables of neighbouring countries on Thailand’s exports using spatial econometric analysis. Further, the study analyses the trade creation and trade diversion effects of FTAs on trade flows between Thailand and 39 other countries. The results show that Thailand’s FTAs hinder the export of agricultural products to developed countries. Although the aim of establishing an FTA is to eliminate tariff and non-tariff barriers among member countries, some developed countries impose technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures on food and agricultural products as non-tariff barriers to developing countries. Moreover, the effect of FTA proliferation between Thailand and its member countries, coined as the Pad Thai Noodle effect, has had a positive impact on the export of manufactured and agricultural products to developed countries. This indicates that the current number of FTAs between Thailand and its member countries do not cause increased complexity of Rules of Origin which leads to a lack of regulatory harmonisation coherence among different FTAs and lower FTA utilisation rate, but rather they support Thailand’s exports to developed countries. The findings reveal that spatial effects affecting Thailand’s export of manufactured products stem from population and the KOF index. The neighbouring countries’ population of Thailand’s trading partners decreases Thailand’s exports. An increase in population creates economies of scale in producing lower-cost products. Therefore, Thailand’s trading countries may import products from their neighbours rather than Thailand. The KOF index used to represent the political stability of trading countries has a positive indirect effect on the export of manufactured products. A higher level of political stability within the neighbours of Thailand’s trading countries leads to an increase in the export of manufactured products from Thailand to its trading countries. With a trade creation and trade diversion analysis, the findings reveal that the India-Thailand FTA (ITFTA), Thailand-Australia FTA (TAFTA), Thailand-New Zealand Closer Economic Partnership (TNZCEP), Thailand-Peru Closer Economic Partnership (TPCEP), Thailand-Chile FTA (TCFTA), and ASEAN-Japan Comprehensive Economic Partnership (AJCEP) promote the export of manufactured products among member countries. However, the Japan-Thailand Economic Partnership Agreement (JTEPA) and ASEAN-Australia-New Zealand FTA (AANZFTA) hinder the export of manufactured products among member countries. For the export of agricultural products, the AJCEP is the only FTA that supports the export of agricultural products to Japan and the ASEAN member countries. In contrast, the JTEPA and ASEAN-China FTA (ACFTA) hinder the export of agricultural products among member countries. Thus, the AJCEP generates the trade creation effect that promotes the export of manufactured and agricultural products among the ASEAN countries and Japan.