Heterogeneous impacts of free trade agreements: The case of Japan

Abstract

This paper investigates the trade creation effects of Japan’s free trade agreements (FTAs) using aggregate trade data for the years 1996–2015. We estimate various specifications of a gravity model. Our main finding is that the effects of Japan’s FTAs are not clearly observed when the gravity model is specified with three types of fixed effects (i.e., expor ter-year fixed effects, impor ter-year fixed effects, and country-pair fixed effects). In fact, the effects of FTAs vary substantially among trade par tners and around half of the FTAs increase Japan’s trade values. Our results also suggest that FTAs with small trade par tners tend to have large effects on Japan as well as other countries. Recently enforced FTAs, however, increase Japan’s impor t values more rapidly.