Deepening of Free Trade Agreements and International Trade: Evidence from China

The expansion of FTA rules from the border to the "depth" within the border can promote the reduction of trade barriers between member countries. Yet, this can also increase the cost of compliance. Hence, this research examines the impact of FTA deepening on China's import and export trade based on the trade data between China and 21FTA partner countries over the period of 2005-2018. This paper introduces the FTA deepening index, constructs a structural gravity model, and empirically applies PPML estimation and instrumental variable methods. The results show that FTA deepening promotes the growth of China's international trade, and the effect on promoting imports is greater than that of export promotion. Additionally, a heterogeneity test between countries and products is carried out. Based on this, our results reveal that FTA deepening has a more significant promoting effect on China's trade imports from developed countries and has a more significant restraining effect on China's exports to developed countries. Furthermore, we demonstrate that the depth of FTA has a less positive impact on China's agricultural trade than on industrial products.