Trade and investment interactions in the Asia-Pacific Region: Effects of integration agreements

The aim of the work is to provide a long-term assessment of the impact of integration agreements on trade and investment interactions between Asia-Pacific countries in 1992–2023. It is determined that the Asia-Pacific region accounts for the largest share of trade and investment interactions worldwide, with intraregional trade in goods and direct capital flows being the main source. The study shows that, in terms of reducing trade and economic barriers between countries, integration agreements can be classified into shallow and deep agreements, with the Asia-Pacific region taking the lead in their creation. Based on a database compiled from various sources on trade and capital flows between Asia-Pacific countries, and using gravity modeling, the long-term cumulative effects of shallow and deep integration agreements on trade and the inflow of accumulated foreign direct investment (FDI) are estimated. The general stimulating effect of integration agreements on trade among Asia-Pacific countries was identified as increasing trade by an average of 21.9%, while their influence on FDI inflow was found to be invariant. We found that shallow integration agreements between Asia-Pacific countries reduced FDI inflows by 47.5% and promoted trade growth by 46.0%; as for deep integration agreements, they increased trade volumes between Asia-Pacific countries by 15.5% and FDI inflows by 23.6%. It was shown that, within the Asia-Pacific region, shallow and deep integration agreements conflicted with each other in terms of attracting FDI. Due to the suppression of FDI inflows by trade in goods and the longer duration of shallow agreements, their long-term cumulative trade effect was greater than that of deep agreements. Deep integration agreements encouraged both trade and direct capital flows between Asia-Pacific countries, pointing to the creation of conditions for complementarity between trade and FDI within more advanced formats of economic convergence aimed at reducing production cooperation costs. Unlike trade, FDI exchange in the Asia-Pacific region proved to be more sensitive to existing barriers to economic interaction and less flexible toward recipient countries of such investments.