Analysis of Trade Effect of China-Singapore FTA Strategy under the Single Country Model ——An empirical study based on gravity model

Miaomiao Pei College of Economics of Shanghai University, Shanghai

China 879557790@qq.com

Abstract—Issues related to free trade agreements have been the focus of international trade research. Based on the relevant trade data of 108 countries from 1997 to 2016, this paper firstly uses the chart to quantitatively analyze China-new bilateral trade, and then uses the gravity model to carry out mixed regression on the trade effect of the new FTA strategy. The FTA trade effect is more accurate and credible. The results of the analysis show that: First, the Sino-Singapore FTA strategy promotes trade between the two countries; second, the bilateral trade volume between China and New Zealand is positively related to the economic scale of the two countries, and negatively related to the distance between the two countries. In line with the conclusion of the traditional gravity model; third, the Sino-Singapore FTA strategy has a positive trade facilitation effect, in which the promotion effect on exports is greater than the promotion effect of imports.

Keywords—Singapore, FTA, gravity model

I. INTRODUCTION As the world's largest developing country, on October 23, 2008, China signed the "Free Trade Agreement between the

Government of the People's Republic of China and the Government of the Republic of Singapore" in Beijing, which is known as one of the "Asian Four Little Dragons". And with the official entry into force on January 1, 2009. With the deepening of regional economic development and the implementation of the “One Belt, One Road” strategy, the bilateral trade volume between China and Singapore has increased from 37.6 billion U.S. dollars in 2005 to 71.5 billion U.S. dollars in 2016 under the efforts of both sides and has become an important trade for each other. partner. The Free Trade Zone is abbreviated as FTA. To what extent has the establishment of the China-New FTA promoted Sino-Singapore trade? What is the impact on China-Singapore trade? Therefore, the trade effect of China-Singapore FTA strategy is the research issue of this paper. Nowadays, China is in the new system of open economy and economy, analyzes the impact of the establishment of a free trade zone on trade between the two countries, and explores the causes of trade effects. It can draw lessons for the ongoing construction of free trade zones and promote China's economy. development of.

Singapore is a member of ASEAN, and China and ASEAN started the free trade zone negotiations in 2002, and signed the Agreement on Trade in Goods in November 2004, stipulating a comprehensive tax reduction on goods from July 2005. Although Singapore is the first member of the ASEAN member states to establish an FTA with China alone, in fact, China-Singapore tax reductions have already been implemented in the China-ASEAN Free Trade Area. According to the China-Singapore Free Trade Agreement Tariff Schedule, most of the 6611 items in the list achieved a significant tax cut of more than 50% in 2007. In 2009, most of the goods were taxed by only 30%. Data show that in 2007, China and New Zealand goods have the largest tax reduction. Therefore, in order to reflect the trade effect relatively accurately, this paper considers the setting of FTA variables as 2007 FTA effective time. When the data is grouped, the FTA value of 1997-2007 is set to 0, and the FTA value of 2008-2016 is set to 1. Through the differential research before and after the implementation of the China-Singapore FTA, the trade effects brought about by the establishment of the China-Singapore Free Trade Zone will be analyzed.

This paper selects the panel data from 1997 to 2016 to study the import and export trade effects of China-Singapore FTA. Firstly, this paper quantitatively analyzes the bilateral trade between China and Singapore through data statistics charts, aiming to analyze its trade development trend and conduct comparative analysis. Secondly, using the gravity model to match the propensity score, the empirical analysis of the trade effect of China-New Zealand FTA the study. The structure of this paper is as follows: the first part is the introduction; the second part is the domestic and foreign literature review; the third part is the Sino-Singapore bilateral trade analysis; the fourth part is the regression model construction and data description, the fifth part is the model initial test, the sixth part Part of it is to match the control group and test, and finally the conclusion of the full text.

II. DOMESTIC AND FOREIGN LITERATURE REVIEW The trade effect of the establishment of a free trade zone on bilateral countries is an important issue in the study of

international trade. Since the 1950s, many scholars in the field of international economy and trade have carried out extensive theoretical research and empirical analysis on the issue of free trade zones and trade effects. The foreign field has been explored earlier, and on the empirical research on the trade effect of the free trade zone,Viner (1950) first conducted a theoretical study on the integration of free trade zones and regional economics, pointing out that after the establishment of the customs union,

2018 8th International Conference on Education, Management, Computer and Society (EMCS 2018)

Copyright © (2018) Francis Academic Press, UK DOI: 10.25236/emcs.2018.094377

there will be two trade effects of trade creation and trade transfer. Hassan (2001) used the gravity model to conduct an empirical analysis of regional economic cooperation in South Asia. The results show that the similarities in environment and resources of member countries make the trade creation effect relatively small.

In China, Liu Qingfeng (2002) used the gravity model to analyze the main factors determining China's bilateral trade in 2000: the economic scale (total GDP), national income level (per capita GDP), spatial distance and institutional arrangements of the two sides. Moreover, the comprehensive influence of these factors determines the basic situation of China's foreign trade scale. Cai Hongbo (2010) used the gravitational model to measure the trade flow effect of China's construction of free trade zones with seven representative economies, and based on this, the fixed effect variable coefficient model was used for comparison. The research shows that mainland China exports to Hong Kong, China. Trade is most affected by bilateral FTA; the great potential of China-India economic and trade cooperation has brought stable expected benefits to the construction of the free trade zone; China-Singapore and China-Australia bilateral FTA have promoted bilateral trade to a certain extent; Chile, New Zealand, The export trade between South Korea and China is in reverse relationship, which has hindered the growth of trade flows between the two sides. Yu Lei (2013) used the gravity model to analyze the impact of the establishment of the China-Singapore Free Trade Zone on the import and export of the two countries. The study found that the free trade zone promoted the import and export trade between China and Singapore, that is, there was a trade creation effect, but The promotion of Singapore’s imports from China is weakening, and Singapore benefits from import and export trade. Qiu Dan and Zhang Bin (2016) used the gravity model as an example to analyze the impact of the construction of the China-New Zealand Free Trade Area on China-Singapore trade. The study shows that the establishment of CNFTA has greatly promoted China's dairy products to New Zealand. import. Li Bo, Du Jun and Yang Liuqing (2017) used the Balassa model to analyze the economic effects of the China-Singapore Free Trade Area. The results show that the establishment of the China-Singapore Free Trade Area has brought positive economic and bilateral trade between the two countries. Positive effect.

III. CHINA-SINGAPORE BILATERAL TRADE ANALYSIS

Figure 1 China's exports to Singapore and changes in growth

(Unit: million dollars, percentage)

Source: United Nations Commodity Trade Database (UN Comtrade)

First, based on data from 1997 to 2016, we conducted a study on the trade effects of China's exports to Singapore. As shown in Figure 1, China’s exports to Singapore generally show an upward trend. Among them, it reached its highest level in 2015 and declined slightly in 2016. Affected by the global financial crisis in 2009, China’s exports to Singapore and export growth rates both declined significantly in 2009. Since the implementation date of the FTA and the time of the international financial crisis basically coincide, the FTA trade promotion effect is likely to be offset by the impact of the financial crisis and cannot be manifested. As a result, China’s exports to Singapore will not increase in 2009. As a result, China’s export growth rate to Singapore has shown a volatile downward trend. After the implementation of the China-Singapore FTA, this volatility was further eroded by the financial crisis. In this article, we set the effective time of the China-New Zealand FTA as January 1, 2007. Although the export volume as a whole shows an upward trend, the chart does not clearly reflect the trend of export growth growth since 2007. Therefore, China’s export growth rate indicator for Singapore cannot be a credible evidence that “FTA promotes China’s increased exports to Singapore”.

As shown in Figure 2, China’s import volume to Singapore is showing an unstable upward trend, while the import growth rate is showing an unstable downward trend. Among them, the import growth rate fell to the bottom in 2009. Before and after the implementation of the Sino-Singapore FTA, China’s imports from Singapore did not find a significant increase. From the analysis of the growth rate of imports, it is also impossible to observe the valid evidence that “China-Singapore FTA has increased the growth rate of China’s imports from Singapore”. Especially in the 2011-2015 period after the implementation of the Sino-Singapore FTA, the import growth rate continued to decline, and reached a negative value in 2015 and 2016.

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Figure 2 China's imports and growth rates from Singapore

(Unit: million dollars, percentage)

Figure 3 Changes in Singapore's trade share of China's foreign trade

(Round: China's share of exports to Singapore

Box: China's imports from Singapore)

The study of trade share helps to show the share of foreign trade. As shown in Figure 3, before the implementation of the China-Singapore FTA, China's exports to Singapore accounted for a relatively stable share of China's total exports. However, after the implementation of the China-Singapore FTA, China’s export to Singapore has increased significantly. This trend has been traced during the period 2005-2006. According to the data, the China-ASEAN Freedom of Mao Trade Zone was signed in November 2004, and in July 2005, the tax reduction was comprehensive, and Singapore is also a member of ASEAN. This is related to the fact that “the proportion of China’s exports to Singapore has started to rise since 2006 and is higher than the proportion imported from Singapore”. Therefore, from the perspective of the change in the proportion of trade shares, the promotion effect of China-Singapore FTA on China's exports from Singapore is greater than the import effect.

Figure 4 Trade in China accounts for the change in Singapore's foreign trade share

(Round: Singapore's share of exports to China

Box: Singapore's share of imports from China)

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We also measured the trend of Singapore's share of China's foreign trade (Figure 4). It can be observed that both Singapore's exports to China and the proportion of imports are generally on the rise. Among them, after the implementation of the Sino-Singapore FTA, Singapore's share of trade imports to China increased rapidly from 0.1% in 2009 to 0.16% in 2016, with 2015 accounting for 0.18%. The growth rate of exports is slower, rising from 0.06% in 2009 to 0.078% in 2016, which is not obvious. Therefore, the above can also prove that the import effect of China-New Zealand FTA on Singapore from China is greater than that of Singapore.

IV. REGRESSION MODEL CONSTRUCTION AND DATA DESCRIPTION The ideas and concepts of the gravitational model are derived from the law of universal gravitation proposed by Newton in

physics. Since the use of gravitational models and empirical analysis of trade flows by Tinbergen (1962) and Poyonen (1963), gravitational models have been widely used in the exploration of bilateral trade.When we analyze the trade effects of the two countries, we use the gravity model.The basic idea of the gravity model is that the scale of bilateral trade between the two countries is proportional to the total economic output of the two countries, and inversely proportional to the distance between the two countries.

tcj

tcj

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tccj

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tcj UFTAPOPPOPDistGDPGDPex +++++= lnln)ln(ln 34210 βββββ (1)

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cj UFTAPOPPOPDistGDPGDPix +++++= lnln)ln(ln 34210 βββββ

(2)

The formula (2) varies from the formula (1). The meanings and expected symbols of the variables contained in the model are as follows:

TABLE I EXPLANATION OF VARIABLES IN THE GRAVITY MODEL OF CHINA-SINGAPORE FREE TRADE AREA

Variable Variable meaning Expected symbol

Theoretical explanation

Explained variable

t

cjex China’s exports to country j in t

t

cjix China’s imports to country j in t

Explanatory variables

t

cjFTA T-year trade effect + Positive trade effect

t

cGDP China's real GDP in t years + Reflecting the scale of the economy

t

jGDP Real GDP of country + Reflecting the scale of the economy

tPOPc China's population in t years

uncertain Reflecting per capita GDP

tjPOP The population of the country j uncertain Reflecting per capita GDP

cjDist Straight line distance between China and the

capital of country j — Distance increases trade costs

Among them, when China and J countries belong to the China-Singapore Free Trade Zone member countries in t years, the FTA value is 1 and the rest is 0. Since the China-Singapore Free Trade Zone contains only China and New Zealand, when the Singapore FTA variable is set, the FTA value after 2007 is 1 and the rest is 0.

The research in this paper is based on panel data created by China and the world's 108 countries using relevant trade indicators from 1997 to 2016. In order to make the data results more accurate and reflect the reality as much as possible, 108 countries do not include China's current FTA partner countries. Among them, the data of bilateral import and export of explanatory variables comes from UN COMTRADE; GDP and population come from the World Bank Development Indicators Database; the distance between the two countries is obtained through the CEPII database.

V. MODEL TEST This paper uses the panel data model to analyze the trade effect of China-Singapore FTA. The main results are shown in

Tables II and III.

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TABLE II IMPORT MODEL REGRESSION RESULTS

OLS RE FE

FTA 0.963 (1.65)

0.977* ( 1.68 )

0.901*** ( 4.70 )

lnGDP 1.152*** ( 45.13)

1.147*** (44.21 )

1.127*** (44.91 )

lnPOP -0.006 ( -0.17)

-0.003 (-0.10 )

0 .002 (0.10 )

lnDIST -0.794*** ( -13.48 )

-.789*** (-13.43 )

-0.746*** ( -13.36 )

constant -35.110*** ( -31.77 )

-35.000*** ( -31.54 )

-35.643*** ( -64.79 )

r 0.674 0.641 0.649 R-sq 0.674 0.674 0.688

Hausman test (probability)

42.26 (0.0000)

Time fixed effect NO NO YES National fixed effect NO NO YES

TABLE III EXPORT MODEL REGRESSION RESULTS

OLS RE FE

FTA 1.399*** ( 4.50 )

1.394*** ( 4.58 )

1.284*** (4.33 )

lnGDP 0.852*** ( 62.75 )

0.824*** ( 58.99 )

0.794*** (55.76 )

lnPOP 0.057*** ( 3.10 )

0.077*** ( 4.19 )

0.094*** (5.13)

lnDIST -0.323*** (-10.32 )

-0.315*** ( -10.29 )

-0.289*** ( -9.62 )

constant -24.418*** ( -41.51 )

-0.315*** ( -40.41 )

-23.266*** (-39.86 )

r 0.806 0.785 0.785 R-sq 0.806 0.806 0.806

Hausman test (probability)

76.02 (0.0000)

Time fixed effect NO NO YES National fixed effect NO NO YES

Note: The value of t in parentheses, ***, **, and * in the table indicate the significance level of 1%, 5%, and 10%, respectively. RE is a random effect. FE is a fixed effect. The results of the Hausman test all show the null hypothesis of rejecting the “non-time-variant heterogeneity is not related to the explanatory variables” and believe that a fixed effect should be adopted.

According to Tables II and III, the first column estimates equations (2) and (3) by basic hybrid regression. Among them, the FTA value of the import equation did not pass the significance test. Because of the neglect of heterogeneity factors that do not include time changes, this set of regressions does not include the effects of fixed “time” and “country groups”, so the results may be biased. In the second column, the model is estimated by random effects, and the t value of individual variables is decreased. The third column controls the effect of time and individual fixed effects on the accuracy of the estimation results by eliminating time and individual differences. Therefore, compared with the random effect results, the FTA coefficient does not change much, but the significance has changed a lot. For example, in the import model, the random effects show that the FTA did not pass the significance test. However, under the fixed effect, the FTA passed the 1% test result. The results of the third column show that the trade volume is significantly positively correlated with the economic scale (GDP) of the two countries, and the distance between the two countries is significantly negatively correlated, and the relationship with the population is uncertain. This result is consistent with the general findings.

VI. THE MAIN RESEARCH CONCLUSIONS Based on the gravity model, this paper firstly conducts a quantitative analysis of bilateral trade effects, and describes the

trends of the growth rate of import and export between the two in the past 21 years; and then conducted an empirical test. The results show that: first, the Sino-Singapore FTA promotes the import and export trade between the two countries; secondly, from the empirical test of mixed regression, the Sino-Singapore FTA has a significant positive effect; third, the new FTA to Singapore The export trade promotion effect is greater than imports.

The signing of the China-Singapore FTA has promoted trade development between the two countries and enhanced economic exchanges between the two countries. While continuing to deepen the escalation of the free trade agreement, China and New Zealand should comprehensively analyze the trade complementarity and competitiveness between China and the target countries, actively explore new channels for economic and trade cooperation, expand new ways of cooperation, and give

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play to their respective comparative advantages and promote Bilateral trade and investment cooperation has been continuously deepened and the trade structure has been adjusted and upgraded.

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