AN EMPIRICAL STUDY OF THE TRADE CREATION EFFECTS AND TRADE POTENTIAL OF RCEP

Developing countries sign free trade agreements aimed to expand their access to markets, improve trade balance, revitalise their economies by increasing production and create jobs opportunities. Keeping in view these objectives, the RCEP agreement was signed by 15 countries which collectively account for 30% of economic production of the whole world and 25% of global trade. Thus, it became the biggest FTA of the world. This study answers two questions. First, what are the trade creation effects of RCEP? and second, what is the trade potential of the RCEP? Results of this study show that RCEP is helping member countries strengthen their trade and increased market access. The 90% tariff reductions serving under RCEP determine its effects on trade, both inside and beyond the union. Intraregional exports are supposed to increase 2%, or 42 billion dollars. This is due to two forces: trade creation and trade diversion. Trade creation is expected to crease trade among member by 17 billion dollars while the trade diversion will increase trade 25 billion dollars among the member countries. On country level China will obtain the highest benefits in terms of improved trade, followed by Japan. While least will go to Cambodia followed by Loas.