Impact of Hong Kong-ASEAN Free Trade Agreement: an assessment from the trade creation and trade diversion perspectives

This study aims to investigate the effects of the ASEAN-Hong Kong Free Trade Agreement (AHKFTA) on exports, concentrating on the trade creation (TC) and trade diversion (TD) effects. Most previous studies evaluated the TC and TD effects of the agreements over a long period, ignoring the use of a short period. This empirical study compares the TC and TD effects of the AHKFTA between 2003-2021 and 2018-2021 to see if there is a difference in the degree of influence. This paper uses panel data covering 34 countries: Hong Kong, a territory Hong Kong's 23 largest partners, and 10 ASEAN countries. To ensure the certainty to accurately capturing the impact of the factors in the gravity model, the study estimates the regression models for panel data by OLS, Random Effect (RE), Fixed Effect (FE), Hausman- Taylor and LASSO methods. Furthermore, the PPML method is also implemented to give a more solid basis for the conclusions. The research found that the current trade policy between Hong Kong and ASEAN is in good performance as it promotes both AHKFTA's intra-regional trade growth and extra-bloc countries.