Free trade agreement (FTA) with China and interaction between exports and imports

• Published in: Baltic Journal of Economic Studies
• Main Authors: Kristjánsdóttir, Helga, Guðjónsson, Sigurður, Óskarsson, Guðmundur Kristján
• Other Authors: Faculty of Business Administration, Interdisciplinary Graduate Studies, University of Akureyri
• Format: Article in Journal/Newspaper
• Language: English
• Published: 2022
• Subjects: Alþjóðaviðskipti; China; Exports; Free trade agreements; International trade; EFTA; Gravity model; SDG 10 - Reduced Inequalities; SDG 5 - Gender Equality; SDG 13 - Climate Action; SDG 6 - Clean Water and Sanitation; SDG 7 - Affordable and Clean Energy; SDG 8 - Decent Work and Economic Growth; SDG 1 - No Poverty; SDG 9 - Industry; Innovation; and Infrastructure; Norway; Iceland
• Online Access: https://hdl.handle.net/20.500.11815/4746; https://doi.org/10.30525/2256-0742/2022-8-1-1-8

The world trade system appears to gravitate toward trade blocks. While the European Union (EU) is by far the largest trade block in Europe, the subject of this research is focused on another European block, the European Free Trade Association (EFTA), with the member states of Iceland, Liechtenstein, Norway, and Switzerland. Unlike the EU, the EFTA countries can enter into Free Trade Agreements (FTAs) individually, with another country, whenever they choose. The world's largest increasing trading house over the last two decades is China, but it has not yet signed an FTA with the EU. However, China has a bilateral agreement with both Iceland and Switzerland. The methodology of this research involves using the STATA program for statistical regression estimation of simultaneous equation system since it estimates the interaction between the trade going between the countries. This allows for considering substitution or complementary effects between the goods flowing back and forth between the countries. The methodology is based on the means of the gravity model. This research aims to answer the following question: is it beneficial for small countries such as Iceland and Switzerland to have a bilateral agreement with China? This research focuses on estimating trade flows, in US dollars, between China and Iceland on the one hand and between China and Switzerland on the other. Results from regression analysis indicate that when accounting for the FTAs, import to Iceland from China positively affects exports from Iceland to China, but not the other way around. However, estimates for trade between Switzerland and China show the reverse of this to be true. When presenting and analyzing literature and economic studies in the field, selection data and presenting the threestage regression result, accounting for the Free Trade Agreements with China, our conclusion is the following: The trade relation of China with the two small European countries of Iceland and Switzerland has developed such that in 2014 the Free Trade ...