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*Corresponding author: Email: laety@mail.ustc.edu.cn;
Short Research Article
Journal of Global Economics, Management and
Business Research
8(2): 95-102, 2017
ISSN: 2454-2504
International Knowledge Press
www.ikpress.org
THE ROLE OF FREE TRADE MEMBERSHIP IN
PROMOTING EXPORTS FLOWS CASE STUDY OF ASEAN-
CHINA FREE TRADE AREA
LAETITIA BYUKUSENGE
1*
, DELPHINE TUYISHIME
1
AND JEAN CLAUDE UMUHIRE
2
1
School of Public Affairs, University of Science and Technology of China, Hefei, China.
2
College of Economics and Trade, Hunan University, China.
AUTHORS’ CONTRIBUTIONS
This work was carried out in collaboration between all authors. Author LB designed the study, wrote the
protocol, interpreted the data and performed preliminary data analysis. Author DT anchored the field study and
gathered the initial data. Author JCU managed the literature searches and produced the initial draft. All authors
read and approved the final manuscript.
Received: 8
th
December 2016
Accepted: 4
th
February 2017
Published: 21
st
February 2017
__________________________________________________________________________________
ABSTRACT
Nowadays China is considered to be the fastest growing country among the developing countries economy of
the world. To get the contribution of free trade area in encouraging China’s exports that affects positively the
Chinese economy, this paper investigated and analysed the volume of China’s trade in the last fifteen years
(2000-2014). The aims of this study are to analyse and examine the role exports flows of China, and to examine
the relationship between exports flows and free trade area agreement based on ACFTA membership of China
since 2002. The exports flows from China to 200 countries are examined in order to see how more China
exported to other member countries in helping this economic cooperation to achieve its objectives of promoting
trade. Through the use of the gravity model and panel data techniques, it was found out that the relationship
between China Exports and Gross Domestic Products of trading partners is positive with the increase in
percentage of 85 percent while the Gross Domestic of China increases with 37 percent. Country’s export sector
is a very important factor in its economic development especially in developing countries.
Keywords: ASEAN; ACFTA; exports flows; gravity model; economic growth.
1. INTRODUCTION
Previous researchers showed that the international
trade has significant positive effects on the economic
growth of countries [1,2]. Tariff on imports is the
source of government revenue but it has effect on
price of products of local industries since products
imported are charged. The price of those products will
locally be increased plus the value of tariffs. The
government controls and reduces the tariffs on the
imports in order to protect local market price increase
through the international negotiations. Free trade
areas have crucial roles in reduction or abolition of
artificial trade barriers and to maintain a greater
liberalization of foreign trade between neighboring
countries [3].
Byukusenge et al.; JGEMBR, 8(2): 95-102, 2017
96
Nowadays, the economy of China is growing very fast
than other developing countries economy around the
world. This paper analysed the exports intervention of
China in the growing of its economy with an analysis
of the China’s exports in the last fifteen years (2000-
2014). China is also among the ACFTA members
with the governments of Brunei Darussalam, kingdom
of Cambodia, Republic of Indonesia, Malaysia,
Philippines and kingdom of Thailand [4]. ASEAN
means Association of South East Asian Nations and
ACFTA means ASEAN-China Free Trade Agreement
which has been signed in November 2002 between
China and ASEAN6 [5,6].
Developing countries always promote different
policies or strategies which will help them to improve
their social welfare and in general to develop their
economy but the policy of increasing exports and
reducing or replacing imports by the domestic
products plays a critical role in the development of an
economy. Having overseas market access and
avoiding geographic distance effects on their
international trade volume; those developing countries
join the various free trade areas where there are free
trade agreements signed among the member countries
which are generally neighbouring countries. In this
regard that China joined ACFTA and signed the free
trade agreement. This research empirically analyses if
there are some effects to the exports of China with
Gravity Model. This study will be significant for
developing countries because they need to know some
negative and positive effects of belonging to different
FTA on their exports, especially on Africa’s countries
have spaghetti
[7]. Free trade agreements have both
negative and positive impact that is why is called
second best initiatives [8]. In addition, in this research,
examines the export flows of China in order to see
currently China trade with other members in helping
this FTA to achieve to its objectives of promoting
trade among the members. The Gravity Model and
panel data techniques are used in this research.
Trade liberalization policy between two or more
countries is very decisive in encouraging the exports
and imports between those countries but sometimes
trade liberalisation agreements are signed between
different countries and they do not implement them
[9]. This research will analyse China’s export flows in
order to check if it trades more with other members of
ACFTA and we analysed the importance of being a
member of this free trade agreement to China.
This research is significant after the analysis of
China’s exports flows. We therefore recommend other
developing countries with a low income level of the
economy to implement trade liberalisation policy in
order to accelerate their economic growth.
The purpose of this research is to analyse and
examine the role exports flows of China, and to
examine the relationship between exports flows and
free trade area agreement in China. This research also
responded to the following questions: (1) Does China
export more to ACFTA members than the remaining
countries of the world? (2) Is there a relationship
between ACFTA trade liberalization agreement and
the current Chinese economy? (3) Which factors have
more influence in China exports to ACFTA countries?
2. LITERATURE REVIEW
2.1 ACFTA and their Members
ACFTA means ASEAN (Association of Southeast
Asian Nations)-China free trade area. ASEAN is a
regional organisation of ten countries located in
Southeast of the Asian continent. Objectives of
ASEAN are to encourage intergovernmental
cooperation and make easy economic integration,
accelerating their economic growth, socio cultural
evolution and social progress between those ten
countries which are Indonesia, Malaysia, the
Philippines, Singapore, and Thailand .ASEAN since
August,1967 with others five new entrants which
included Brunei, Cambodia, Laos, Burma and
Vietnam [10]. The framework agreement on ACFTA
comprehensive economic cooperation was signed by
member countries at sixth china-ASEAN summit in
November 2002. In November 2004, they signed the
agreement on trade in goods which entered into force
in July 2005. The agreement on trade in services was
signed in January 2007 by ACFTA members and
entered into in July 2007. The agreement on
investment was also signed in August 2009. The
ACFTA creation enhances trade relations and close
economic between the members [11]. In terms of
population ACFTA is the largest free trade area and in
terms of nominal GDP is the third free trade area in
the world since China is the most populous country
and the second largest economy in terms of GDP [12].
2.2 The Role of Free Trade
With free trade area, countries can import and export
goods without fear of government intervention or
tariffs and limitations. In general free trade has
different advantages to all countries and especially to
the countries which are in developing stage. The free
trade offers the several benefits to developing
countries such as increase resources, better Foreign
Relations, production efficiency, higher employment
rates, access to new markets, higher levels of
investment capital leads to better jobs, new markets
and increased investment, Free trade ranges beliefs
and values as well as goods and services [13]. Some
Byukusenge et al.; JGEMBR, 8(2): 95-102, 2017
97
benefits are gained with promoting exports such as
increase in production, economic development and
business incentives.
2.3 Gravity Model
Most researchers in international trade or international
economics used the gravity model theory as their
empirical theoretical review. The first two researchers
who applied the gravity model are Tinbergen in 1962
[14] and Pöyhönen in 1963 [15]. It is extensively used
in this field more than the 50 years ago. The Gravity
model is the workhorse of international trade and its
capability to correctly approximate bilateral trade
flows makes it the most stable empirical relationships
in international economics [16]. Panel data defined as
data sets consisting of multiple observations on each
sampling unit. The pooling time-series observations
across a variety of cross-sectional units could generate
panel data including countries, states, regions, firms,
or randomly sampled individuals or households [17].
The advantages of using panel data in the bilateral
trade flows analysis are as follows firstly, the
relevance among variables over time can be captured
by the panels; secondly, the unobservable trading-
partner-pairs‟ individual effects can be also monitored
by the panels since the effects of individual correlated
with the regressors, Ordinary Least Squares
estimation omits the individual effects which make it
biased. In analyzing the Panel data three techniques
should be used which are pooled OLS regression
model, fixed effects model, and random effects model
[18].
2.4 The Research Theory
This research is based on the international trade
theory of Eli Heckscher and Bertil Ohlin with their
theorem states that a country will produce and export
the good whose production makes intensive use of the
relatively abundant factors of production before trade.
The Nations should decrease the production and
increase the imports of the good whose production
makes intensive use of the expensive factor of
production before trade .The Heckscher-Ohlin theory
emphasize that Nations should produce and export
goods that require factors that are abundant and
import goods that require resources in short supply
[19,20].
2.5 Geographic Distance and Tariffs
Tariff rate and transporting costs are not the same in
the world; each nation has its rates [21]. When
physical distance between exporter and importer
enlarged, trade flows between them decline so; the
geographic distance has destructive effects on the
exports values
[22,23]. Direct transport costs impede
trade in much the same way as tariffs
[24,25]. The
CIF (Cost, Insurance and Freight)-FOB (Free on
Board) gap is an economically measure of the wedge
between the cost of producing and moving a good to
the exporter’s port and the price paid by the importer
upon the good’s arrival in the destination country [26].
Further distance between the two potential trade
partner increases bilateral trade costs and reduces the
benefits of trade [27].
3. DATA PRESENTATION
The following scatter pilots were drawn by the use of
STATA software which shows the logarithm of
exports value to its trading partners. China exports
various goods and services in quality the same as in
quantity to other countries.
Fig. 1. China exports and Distance between its trading partners
0 1.0e+11 2.0e+11 3.0e+11 4.0e+11
China Exports for 2000-2014(US$)
0 5000 10000 15000 20000
Distance between China and Importers( in Km)
Fcnj Fitted values
lowess fcnj dcnj
China Exports and Distance between its trading partners
Byukusenge et al.; JGEMBR, 8(2): 95-102, 2017
98
Fig. 2. China Exports values and its trading partners GDP from 2000 to 2014
From Fig. 1, we recall that the Geographic distance
negatively affects international trade of developing
countries [28] but it no longer affects much of China’s
exports. According to the above China Exports more
to its neighboring countries and less to none neighbor
countries.
The above Fig. 2 is showing the relationship between
China exports volume and its trading partners Gross
Domestic Products. The relationship is positive, China
exports more to the developed countries and less to
developing countries.
4. RESEARCH METHODOLOGY
The methodology of this research is based on the
gravity model, panel data sets and its estimations.
Panel data sets have three effects estimations which
are the pooled OLS regression model, fixed effects
and random effects. We had some different tests in
selecting the best estimators. For instance, in choosing
the better estimator between pooled OLS regression
model and random effects estimations Breusch-Pagan
Lagrange multiplier (LM) test applied and Hausman
test will be applied in selecting the appropriate
estimation between random effects and fixed effects
with the following two hypothesises (1) H
1:
Due to
trade liberalization agreement between China
and
ASEAN member countries, China exports more to
those countries than the remaining countries in the
world. (2) H
2:
China exports more to developed
countries or other developing countries but which are
not ACFTA members (remain countries of the world)
and less to ACFTA members.
4.1
Econometric Model and Variables
Definition
In this research, we use logarithms of Gross Domestic
products of China and trade partners as the economic
masses variables and geographic distance between
groups of trading countries. We consider other
international trade factors but they are the Dummy
variables (to be landlocked or not, to use common
languages, to share common border and to belong in
the same RTA or not) in formulating the following
linear regression model is used:
(1)
Where CN is China and j is its trading partner,
CNj
F
is
the total trade volume exported from China to country
j,
CN
M
is the proxy of GDP(Gross Domestic Product)
of china and
M
j
is GDP of China trading
country(exporter),
CNj
d
Presents the distance
between China and its trading partners,
j
landlock
is
whether China trading partner is a landlocked country
or not,
CNj
lang
Whether China and its trading partner
have the same official languages,
CNj
bord
if China
and its trading partners share the same a common
border,
CNj
ACFTA
if there is trade between two
0 1.0e+11 2.0e+11 3.0e+11 4.0e+11
China Exports Value (US$) for 2000-2014
0 5.0e+12 1.0e+13 1.5e+13 2.0e+13
Importers GDP 2000-2014
Fcnj Fitted values
lowess fcnj dcnj
China Exports value and its trading partners GDP 2000-2014
ln ln lnln
CN CNj CNj CNj CN
CNj j CNj
F B B M B M B d B landlock B lang B bord B ACFTA e
= + + + + + + + +
0 1 2 j 3 4 5 6 7
CN CNj CNj CNj CN
CNj j CNj
j
F B B M B M B d B landlock B lang B bord B ACFTA e
= + + + + + + + +
0 1 2 j 3 4 5 6 7
Byukusenge et al.; JGEMBR, 8(2): 95-102, 2017
99
members of ACFTA,
CNj
e
is the error term and
B
0
to
B
7
are the coefficients.
The relationship between the dependent variable and
its independent variables is examined by drawing a
correlation table with using SPSS software program.
That correlation table also shows us the relations with
the Sample size of all countries imported products
from China during the 15 years from 2000-2014.
In evaluating the rate of exports from China to
ACFTA we need to calculate the intraregional exports
share and the intraregional exports intensity
Intraregional Exports Share =
,
,
cn ACFTA
cn world
E
E
(2)
Where E is standing for exports, Cn for China. We get
Intraregional Exports share by taking the total exports
of China to the other members over total of all exports
to the world (members of ACFTA and non member
countries).
5. DATA SOURCES
The data collected on the base of consulting
publications of other scholars, and the online database
such as World Bank online database is a source of
Gross Domestic Products of trading partners, and
exports value of China [29]. Geographic distance data
are from wolfram engine and knowledge
[30]. The
intension of choosing these databases is based on a
belief of that are the best ones containing data on
flows of international trade of most of countries which
can contribute maximally to the research, and there
was an expectation of getting more databases during
the research process. Data for Dummy variables such
as to be a member country of ACFTA, we have the
list of eleven countries which are member [31], list of
landlocked countries [32] and list of 14 countries
which share the same borders with China [33]
6. DATA DESCRIPTIVE, CORRELATIONS
TABLE AND REGRESSION MODEL
OUTPUT
In this Empirical analysis, we used unbalanced panel
data and a sample of 200 countries from different
continents since a country should be repeated for
fifteen years or not all years then we have 2801
countries as the total number of countries
(observations: group of China and its trading partners)
for the whole period (2000-2014). These are the main
China importers countries for 2000 to 2014. China has
only one an official language which is Mandarin or
Chinese language but none of its importers use the
Chinese language as its official language. The dummy
variable of common languages does not have any
influence on China Exports.
Table 1. Summary and descriptive of data
Variable Obs Mean Std. dev. Min Max
lnfcnj
lnmcn
lndcnj
landlockcnj
langcnj
bordcnj
rtacnj
2801
2801
2801
2801
2801
2801
2801
19.61913
28.88053
8.947358
.1881471
0
.0571225
.0489111
2.805906
.7280037
.5528576
.3908994
0
.2321179
.2157207
7.779885
27.81772
7.11
0
0
0
0
26.70747
29.96898
9.87
1
0
1
1
Table. 2 Correlations
Lnfjcn Lnmcn Lnmj Lndjcn Landlockcnj Bordcnj Rtacnj
Lnfjcn Pearson
correlation 1 .372
**
.848
**
-.256
**
-.176
**
.141
**
.189
**
sig
. (2
-
tailed)
.000
.000
.000
.000
.000
.000
N
2801
2801
2801
2801
2801
2801
2801
Lnmcn Pearson
correlation .372
**
1 .177
**
-.011 -.004 .007 .007
sig. (2-tailed) .000 .000 .554 .825 .696 .728
N 2801 2801 2801 2801 2801 2801 2801
Lnmj Pearson
correlation .848
**
.177
**
1 -.186
**
-.123
**
.059
**
.108
**
sig. (2-tailed) .000 .000 .000 .000 .002 .000
N 2801 2801 2801 2801 2801 2801 2801
Byukusenge et al.; JGEMBR, 8(2): 95-102, 2017
100
Lnfjcn Lnmcn Lnmj Lndjcn Landlockcnj Bordcnj Rtacnj
Lndjcn Pearson
correlation -.256
**
-.011 -.186
**
1 -.191
**
-.561
**
-.405
**
sig. (2-tailed) .000 .554 .000 .000 .000 .000
N 2801 2801 2801 2801 2801 2801 2801
Landlockcnj Pearson
correlation -.176
**
-.004 -.123
**
-.191
**
1 .220
**
-.046
*
sig
. (2
-
tailed)
.000
.825
.000
.000
.000
.016
N
2801
2801
2801
2801
2801
2801
2801
Bordcnj Pearson
correlation .141
**
.007 .059
**
-.561
**
.220
**
1 .158
**
sig. (2-tailed) .000 .696 .002 .000 .000 .000
N 2801 2801 2801 2801 2801 2801 2801
Rtacnj Pearson
correlation .189
**
.007 .108
**
-.405
**
-.046
*
.158
**
1
sig. (2-tailed) .000 .728 .000 .000 .016 .000
N 2801 2801 2801 2801 2801 2801 2801
**. Correlation is significant at the 0.01 level (2-tailed).*. Correlation is significant at the 0.05 level (2-tailed)
Table 3. Pooled regression model output
lnmcn .8985074 .0334396 26.87 0.000 .8329386 .9640762
lnmj .8935764 .0103912 85.99 0.000 .8732011 .9139517
lndcnj -.3283889 .0581875 -5.64 0.000 -.4424838 -.214294
landlockcnj -.7544562 .0643373 -11.73 0.000 -.8806096 -.6283029
langcnj (omitted)
bordcnj .851757 .1262689 6.75 0.000 .6041672 1.099347
rtacnj .8169482 .1229171 6.65 0.000 .5759308 1.057966
_cons -24.50829 1.099779 -22.28 0.000 -26.66475 -22.35183
7. FINDINGS
In doing this research, we expect to find out how
international negotiation helps government to protect
their domestic consumers and local industries which
increase the economic growth of member countries.
According to the correlation table, having a common
language is no longer among factors which should
influence China exports to other countries because it
is omitted and in our data sets there is not any country
which has the same official language with China. The
dependent variables (exports value from China in US
dollars) have significant correlation but the
geographic distance between China and its importers
has negative effects on its exports value where the
geographic distance has significant negative
correlation of 26 percent. The dummy variable of
landlocked also decreases the exports volume between
countries, in our case China exports various products
and services in different landlocked countries but the
relationship between its export values (dependent
variable) and landlocked dummy variable is negative
with a significant correlation of 18 percent. Gross
Domestic Product (GDP) of the importer countries
variable has a perfect positive relationship with China
export values as 85 percent, China exports more to
developed countries but the annual GDP of China also
affects positively the exportation volume of
percentage of 34. China exports value is increased by
14 percent and 18 percent when China trades with the
countries of the same border (we have 14 countries
which share the same border with China) and to be
belong to ACFTA as well. Although the graph of
geographic distance, GDP of importers and exports
volume each shows the relationship between those
three variables but we need to clarify the relationship
of exports value and to belong to the same regional
trade agreement with China. In order to investigate if
China exported more to ACFTA we need to calculate
the intraregional trade share.
In this case, we assume
that imports from ACFTA and the rest of the world
are equal to zero. Then we take total of China exports
values to others ACFTA members over China exports
to the world, we get the ratio of 55 percent which
means that China exports more to ACFTA members
and less to remain countries of the world, to be
member of ACFTA and trade liberalization have
positive effects on China’s exports.
Briefly, exports of China positively are influenced by
GDP of importers, GDP of China, having the same
border and to trade with a free trade area member
countries but they are negatively affected by the
geographic distance between China and its trading
partners and to trade with landlocked countries.
8. CONCLUSION AND RECOMMENDA-
TION
This paper discuses the role of free trade membership
of China to ACFTA and evaluation of its export flows
and some common factors that affect the China
Byukusenge et al.; JGEMBR, 8(2): 95-102, 2017
101
exports. China exports are high in quantity but they
are affected negatively by the geographic distance and
the exportation of goods and services to landlocked
countries. As China exports increase, GDP of China
also increases as well. The relationship between
Chinese economy and its membership in ACFTA is
positive and it finally promotes its exports volumes
due to trade agreement and liberalisation of ACFTA.
The findings show that trading with ACFTA countries
members and the countries of the common border
with China increases the China exports. China exports
more to ACFTA members and less to remain
countries of the World. The relationship between
ACFTA trade liberalisation agreement and the current
Chinese economy is positive. To have common
borders and to belong in the same free trade area are
very important factors which influence China to
exports more to ACFTA country members. It is
therefore suggested that having common official
language with trading partners should raise exports
value of countries and it recommended that China
should use more than one official language for raising
its export values. Other developing countries should
learn from China’s experience in exporting more
products and services to other countries and to
members of their regional integrations.
COMPETING INTERESTS
Authors have declared that no competing interests
exist.
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