Abstract
This paper investigates the effects of regional trade agreements initiated during the last two decades on the trade flows between small island states situated in the South Pacific Ocean. The agreements have contributed to the growth of regional trade flows positively, but to a limited extent due to a significant trade diversion to non-member countries. We argue that the incentive of trade with a large non-member country tends to be more than that with a small regional member because of limited demand, scale and industrial activities. Though the trade barriers have declined substantially in the Pacific, high trade costs due to poor logistics, bureaucratic regulations and weak institutions compared to the neighbours have remained the binding constraints for deriving potential benefits from such agreements. Collective negotiations for external trade and developing common logistics and institutions for facilitating trade among the members would encourage regional trade flow and minimize asymmetric gains among the members.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
Fiji, the Cook Islands, Kiribati, Nauru, Niue, Palau, Papua New Guinea, Marshall Islands, Micronesia, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu.
References
Anderson, J. E. (1979). A theoretical foundation for the gravity equation. American Economic Review, 69(1), 106–116.
Anderson, J., & Van Wincoop, E. (2003). Gravity with gravitas. American Economic Review, 93(1), 170–192.
Anderson, J., & Van Wincoop, E. (2004). Trade costs. Journal of Economic Literature, 42, 691–751.
Baier, S. L., & Bergstrand, J. H. (2001). The growth of World trade: tariffs, transport costs, and income similarity. Journal of International Economics, 53(1), 1–27.
Bowman, C. (2011). Aid for trade strategy in the Pacific. International Trade Forum, 4, 18–19.
Chen, N., & Novy, D. (2009). International trade integration: a disaggregated approach. CESifo Working Paper Series No. 2595
Davis, D. R. (1995). Intra-industry trade: a Heckscher–Ohlin–Ricardo approach. Journal of International Economics, 39(3/4), 201–226.
Direction of Trade Statistics. (2011). Retrieved from Direction of Trade Statistics (DOTS): http://elibrary-data.imf.org/FindDataReports.aspx?d=33061&e=170921
Duval, Y., & Utoktham, C. (2011). Trade facilitation in Asian and the Pacific: Which policies and measures affect trade costs the most? Asia-Pacific Research and Training Network on Trade (ARTNet), Working Paper Series, No. 94. http://www.unescap.org/sites/default/files/AWP%20No.%2094.pdf
Frankel, J., & Romer, D. (1999). Does trade cause growth? American Economic Review, 89(3), 379–399.
Freund, C., & Ornelas, E. (2010). Regional Trade Agreements. Annual Review of Economics, 2, 139–166.
Gani, A. (2010a). Distance is a friction to Pacific island Countries trade with the USA. Journal of International Trade Law and Policy, 9(1), 97–101.
Gani, A. (2010b). Some aspects of trade between Australia and Pacific Island Countries. The World Economy, 33(1), 89–106.
Gani, A., & Clemes, M. D. (2010). Services and economic growth in Pacific Island countries. International Journal of Development, 9(2), 113–130.
Gani, A., & Prasad, B. C. (2008). The relationship between institutional quality and trade in Pacific Island Countries. Journal of International Trade Law and Policy, 7(2), 123–138.
Gilbert, J., Scollay, R., & Bora, B. (2001). Assessing regional trading arrangements in the Asia-Pacific. Policy Issues in International Trade and Commodities Study Series No. 15. https://www.wto.org/english/tratop_e/region_e/sem_april02_e/rta-asia.pdf
Irwin, D. A., & Tervio, M. (2002). Does trade raise income? Evidence from the twentieth century. Journal of International Economics, 58(1), 1–18.
Jacks, D. S., Meissner, C. M., & Novy, D. (2008). Trade costs, 1870–2000. The American Economic Review, 98, 529–534.
Jayaraman, T. K., & Lau, E. (2011). Oil price and economic growth in small Pacific island countries. Modern Economy, 2, 153–162.
Keller, W. (2002). Trade and transmission of technology. Journal of Economic Growth, 7(1), 5–24.
Keller, W. (2004). International technology diffusion. Journal of Economic Literature, 42, 752–782.
Kemp, M. C., & Wan, H. (1976). An elementary proposition considering the formation of Customs Unions. In M. C. Kemp (Ed.), Three Topics in the Theory of International Trade: Distribution, Welfare and Uncertainty. Amsterdam: North Holland.
Krugman, P. (1980). Scale economies, product differentiation and the pattern of trade. The American Economic Review, 70, 950–959.
McCallum, J. (1995). National borders matter: Canada–U.S. regional trade patterns. American Economic Review, 85(3), 615–623.
Melitz, M. (2003). The impact of intra-industry reallocations and aggregate industry productivity. Econometrica, 71(1), 1695–1725.
Narsey, W. (2004). PICTA, PACER and EPAs: weakness in Pacific island countries trade policies. Pacific Economic Bulletin, 19(3), 74–101.
Noguer, M., & Siscart, M. (2005). Trade raises income: a precise and robust result. Journal of International Economics, 65, 447–460.
Panagariya, A., & Krishna, P. (2002). On necessarily welfare-enhancing free trade areas. Journal of International Economics, 57(2), 353–367.
Pugel, T. A. (2009). International economics (14th ed.). Boston: McGraw-Hill Irwin.
Rodrik, D., Subramanian, A., & Trebbi, F. (2004). Institutions rule: the primacy of institutions over geography and integration in economic development. Journal of Economic Growth, 9(2), 131–165.
Romalis, & John, (2007). NAFTA’s and CUFTA’s impact on international trade. Review of Economic and Statistics, 89(3), 416–435.
Ruggiero, R. (1998). Ruggiero criticizes “invisible” trade barriers. WTO News: Press Releases (online). Retrieved February 17, 2015, http://www.wto.org/english/news_e/pres98_e/pr95_e.htm
Scollay, R. (2008). Assessment of the extent of trade liberalization in Pacific Island Countries (PICs) and Review of the Pacific Island Countries Trade Agreement (PICTA). Suva: Pacific Islands Forum Secretariat.
Vamvakidis, A. (1998). Regional integration and economic growth. The World Economic Review, 12(2), 251–270.
Viner, J. (1950). The Customs Union issue. New York: Carnegie Endow. Int. Peace.
Yang, Y., Chen, H., Singh, R., & Singh, B. (2013). The Pacific speed of growth: How fast can It be and what determines It? IMF Working Paper, 13/104
Yeape, S. R. (2005). A simple model of firm heterogeneity, international trade and wages. Journal of International Economics, 65, 1–20.
Acknowledgments
We would like to acknowledge research support provided by the University of the South Pacific to carry out this research under strategic research theme on “Trade Creation, Regional Growth and Development: The Role of Regional Trade Agreement in the South Pacific Islands”. Usual disclaimers apply.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Maiti, D., Kumar, S. Regional agreements, trade cost and flows in the Pacific. Econ Polit 33, 181–199 (2016). https://doi.org/10.1007/s40888-016-0029-z
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s40888-016-0029-z