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Journal of Economic Integration 2003 March;18(1) :126-149.
Forces Underlying Trade Integration in the APEC Region: A Gravity Model Analysis of Trade, FDI, and Complementarity

Shigeru T. Otsubo Tetsuo Umemura 

Nagoya University
University of the Ryukyus
Copyright ©2003 Journal of Economic Integration
Accompanying the wave of liberalization in motion since the mid 1980s, trade complementarity and its underlying structure of comparative advantage have started to dictate the directions of international trade flows. The vibrant FDI-export-led Asian growth has revealed the role of FDI as a financial gravity for trade integration in the APEC region. Analyses of forces underlying trade integration using trade gravity models with dummies for regional trading arrangements, augmented by the additions of trade complementarity and FDI flows as gravity variables of emerging significance, suggest that 1) APEC is more potent in the creation of intra-regional trade compared to other regional trading arrangements (RTAs); 2) intra-regional trade generation is much more significant in North-North and North-South RTAs as compared to that for the South-South RTAs; 3) trade complementarity is a significant determinant of the directions of trade, and its significance has grown since the mid 1980s with reductions in trade distortions; and 4) inward FDI is a significant determinant of the direction of intra-APEC trade transactions.
Keywords: APEC | FDI | Gravity model | Trade complementarity | Regional trading arrangements | Integration
1. Michaely, Michael (1994), "Trade-Preferential Agreements in Latin America: An Ex-Ante Assessment," World Bank, Latin America and the Caribbean Region Department.
2. White, Halbert (1980), "A Heteroskedasticity-Consistent Covariance Matrix and a Direct Test for Heteroskedasticity," Econometrica, Vol. 38, pp. 817-838.
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