Examining the Impact of Korea’s Free Trade Agreement (FTA) on Seaborne Trade Cargo Volumes1)

This paper aims to estimate the net effect on port cargo volume generated by free trade agreement (FTA) through empirical analysis of port cargo, employing various econometric models. To estimate the change in trade volume, we adopted various models such as gravity model, network model, and modified gravity model. Our test results show that the net effects of the FTA on port throughput estimated by the network model account for 2~6% annual increase in terms of performance in 2012. In contrast, the net effects by the modified gravity model are four to six times higher than those by the network model. Therefore, it implies that there is a large gap in the estimated FTA effect among the applied estimation models. However, this gap can be explained so far as the diversion effect caused by the FTA in trade between countries is taken into consideration. We conclude that the modified network model is the most appropriate for estimating the effect of the FTA in terms of how easily the explanatory variables can be estimated, how exactly the diversion effect of trade can be excluded, and how simple the estimation is.