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The Trade and Investment Effect of South-South Regional Integration

Author: ZhaoBinYuan
Tutor: LiRongLin
School: Nankai University
Course: International Trade
Keywords: South-South Regional Integration Trade Effect InvestmentEffect
CLC: F742
Type: PhD thesis
Year: 2012
Downloads: 36
Quote: 0
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Abstract


This article inspected the trade effect and investment effect of the South-Southregional integration from the two aspects of the economic theory and empirical test,and discussed the achievements of China’s participation in the South-South regionalintegration on this basis. Since the reform and opening up, especially in the first fewyears of the21st century, Chinese paid more attention to the economic and tradeexchanges with developed countries, especially to attracting foreign investment andexporting products to developed countries. Along with the growing power of China`seconomy, trade friction increased. Some developed countries issued economicpolicies such as "purchasing local goods","manufacturing backflow", and establishedthe "cross-sectoral trade law enforcement agencies" in order to limit China productsto gain more world market share. Affected by the economic crisis, some developedcountries implemented "quantitative easing" policy, so the China`s foreign currencyreserves accumulated by exporting commodities, the accumulation of foreigncurrency reserves of depreciate significantly. After joining WTO, at the same time ofactively promoting the multilateral trade negotiations, China also participated andestablished regional economic integration organizations in order to fully integrate intothe world economy system, and these regional integration organizations mostlybelonged to the South-South regional integration organization.In the currentinternational economic situation, the research on the economic effect of South-Southregional integration can deepen our understanding of China`s participation inSouth-South regional integration, and reasonable guide China’s future internationalregional integration policies and economic and trade policies.The theoretical derivation based on increasing returns to scale and monopolycompetition market structure, in order to measure the South-South regionalintegration and trade effect through the construction of national welfare function. Inthe theoretical part, the differences between the south and the north were reflected intwo aspects. First, the relative endowment was different. The southern countries were relatively abundant in labour, and the northern countries abundant in capital.According to the theory of comparative advantage, the southern countries exportedagricultural products intensively using labour resources, and the northern countriesexported industrial products intensively using capital. There were constant returns toscale in agricultural production, while increasing returns to scale in industrialproduction. Second, the import tariff rates were different. The import tariff rate ofnorthern countries was relatively lower, and the opening degree was higher, while therate of southern countries was higher. On the basis of the analysis of the trade effect,in order to investigate the investment effects of South-South regional integration,capital would be looked as a kind of transnational flowing factor, and the actualinternational capital distribution would be used uo measure the investment effect ofSouth-South regional integration. In order to reduce the complexity of the model andfocus attention to main points, in the analysis of investment effect, this article usedindustrial production function constructing method of footloose capital model, andput tariffs into the transaction cost.Becausse it was difficult to obtain explicit solutions from the teoreticalderivation, this paper numerically simulated main exogenous variables in order toreflect the economic effect of the South-South regional integration. This paper alsoempirically tested the trade effect and the investment effect of the South-Southregional integration, and the result was consistent with that of mumerical simulation.First, the direction of the overall trade effect of NSRTA and SSRTA was uncertain.The difference of per capita capital between the south and the north incrased the tradecreation effect of NSRTA, while the difference of tariff rates reduced this effect;NSRTA led to the capital outflow from the south member states, and and south-southregional integration led to capital inflows due to the the capital accumulation effect.Second, the larger the economic scale of member states, the less the trade revenue ofSSRTA, and the more the investment of SSRTA. Third, the more capital per capita ofmember states, the more the trade revenue of SSRTA; if the population was constant,the more capital per capita of member states, the investment inflow effect of SSRTAalso became larger. Fouth, the lower the menber states tariff, the more the SSRTAtrade revenue; with the external tariff gradually reduced, the actual capital share of SSRTA firstly reduced; when the tariff rate reached a critical value, capital swiftlyaggregated into this southern country.We also examined the trade and investment effect of SSRTA participated byChina. Due to China’s participation in the South-South regional integration, China`simport from partner countries increased, import from countries outside the regionimport reduced, and the trade creation and trade diversion effect both existed.Meanwhile, China also increased the export to SSRTA partners, and so the directionof SSRTA trade effect was positive. By participating in South-South regionalintegration, China attracted more investment from outside, and also added theinvestment outflow to the partners. The trade and investment effect was obvious ofthe regional integration between China and ordinary developing nations, while that ofSSRTA between China and port coutries was not significant.

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