Factor Endowments, Trade Liberalization and the Future of APEC Trade Patterns

Kitty K. Chan and Jeffrey B. Nugent

Abstract

The heads of state of APEC nations have committed member nations to remove all barriers to trade both among themselves and with respect to the rest of the world by 2020. The present paper uses a simple econometric model of bilateral trade flows based on country size, relative factor endowments and trade barriers of importing as well as exporting countries to estimate the shares by country of origin in imports of each of the sixteen major APEC countries and the rest of the world for each of 45 commodity groups comprising world trade in commodities. The estimates reveal that APEC trade would be expanded by 13% with complete liberalization of tariff barriers, by an additional 5% if non-tariff barriers are also removed and by another 4% if the rest of the world would also remove all barriers to trade. Variants on this base scenario show that such trade expansion could be substantially reduced were trade liberalization, capital growth or both to be reduced in the countries affected by the Asian financial crisis. (JEL F1, F17)

Full Article