A Factor Analysis of Trade Integration: The Case of Asian and Oceanic Economies

HKIMR Working Paper No.13/2009

24 Pages Posted: 8 Apr 2009

See all articles by Yin-Wong Cheung

Yin-Wong Cheung

City University of Hong Kong - Department of Economics & Finance; University of California, Santa Cruz - Department of Economics; University of California at Santa Cruz - Department of Economics

Matthew S. Yiu

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR)

Kenneth K. Chow

Hong Kong Institute for Monetary Research

Date Written: March 26, 2009

Abstract

We study trade integration among 15 selected Asian and Oceanic economies using factor models. The principal component approach is employed to extract the common factor that drives trade integration from bilateral trade integration series. It is found that the estimated common trade integration factor has strong seasonal and deterministic components. In accordance with theory, the common trade integration factor is significantly associated with the economic growth and the trade barriers of the 15 economies. However, we find no evidence that the common trade integration factor is affected by foreign direct investment. The basic model is extended to incorporate an ASEAN factor that affects trade integration among the ASEAN economies in our sample.

Keywords: Factor Model, Principal Component, Growth, Trade Barriers, ASEAN

JEL Classification: F15, F36, F42

Suggested Citation

Cheung, Yin-Wong and Yiu, Matthew S. and Chow, Kenneth K., A Factor Analysis of Trade Integration: The Case of Asian and Oceanic Economies (March 26, 2009). HKIMR Working Paper No.13/2009, Available at SSRN: https://ssrn.com/abstract=1374774 or http://dx.doi.org/10.2139/ssrn.1374774

Yin-Wong Cheung

City University of Hong Kong - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

University of California, Santa Cruz - Department of Economics ( email )

435 Engineering 2
Santa Cruz, CA 95064
United States
831-459-4247 (Phone)
831-459-5077 (Fax)

University of California at Santa Cruz - Department of Economics ( email )

1156 High Street
Santa Cruz, CA 95064
United States

Matthew S. Yiu

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR) ( email )

55/F Two IFC
8 Finance Street, Central
Hong Kong, HK
China
+852 2878 1974 (Phone)
+852 2878 7006 (Fax)

Kenneth K. Chow (Contact Author)

Hong Kong Institute for Monetary Research ( email )

55/F, Two International Finance Centre
8 Finance Street, Central
Hong Kong
Hong Kong
2878 1975 (Phone)
2878 7006 (Fax)

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