Do Japan’s Free Trade Agreements Increase Its International Trade?

Abstract

This study analyzes the impacts of free trade agreements (FTAs) on bilateral trade, focusing on Japan’s FTAs. In particular, we examined both static and dynamic effects at the aggregated and disaggregated levels, using two datasets between 1995 and 2016 for Japanese trade only and world trade. For the static analysis, we investigated the overall impacts and the effect of individual FTAs. Regarding dynamic analysis, we considered the time since their enactment. Our results indicate that the impacts are heterogeneous among Japan’s FTAs and products, with a trade creation effect for some FTA partners. Moreover, our findings reveal that the trade creation effect is probably overestimated when trade between the third countries is not considered. We also found a positive dynamic effect for some products. Such a dynamic effect may emerge due to a longer time for firms to understand FTAs and learn their use and the gradual tariff reduction for some products.