Date & time
The paper examines the impact of the 2015 Australia-China Free Trade Agreement (AusChFTA) on bilateral trade in goods based on the transformed structural gravity equation with a difference-in-difference measure of import shares and tariff changes. The analysis obtains estimates of elasticity of substitution between sources of imports across all products and at the product group level. These estimates are then used to estimate the counterfactual levels of import flows to identify the trade value effects. The counterfactual estimation of import levels shows that despite the declining trends in actual imports of each country from the other, total bilateral trade increased by $US 4.2 billion in 2016, or about 3.8 per cent, compared to the counterfactual level if the AusChFTA had not been implemented. The estimation of sectoral elasticities of substitution and analysis of import patterns suggests that the AusChFTA has helped both countries boost their exports in sectors where they appear to have comparative advantages.