Abstract
Recently, many countries endeavor to promote trade-liberalization. In additionto the World Trade Organization(WTO),there is also anincreasing number of Free Trade Agreement(FTA)among countries. As a result, FTAs have beenregarded as an important factor when discussing the impact of trade-liberalization. This research mainly discusses the influences of FTA on Taiwan’s trade volume with selected trading partners. Although it is more appropriate to consider every country with which Taiwan has signeda FTA, the period elapsed after signing theEconomic Cooperation Framework Agreement(ECFA) is not long enough (signed in 2010). For this reason, this research focuses on the other 5 countries: Panama, Guatemala, Nicaragua, El Salvador and Honduras, which have long enough period after signing FTA with Taiwan to observe the impacts. In the empirical investigation, I adopt the Gravity Model to analyze the effect of FTA on trade volume. In addition, I trace the impact of FTA in one, two, three, or over three years and provide possible explanations. Besides, the effects of trade-liberalization may vary across different products as they face different ways to exchange. I address this by categorizing products into three types according to Rauch (1999)Classification: Organized Exchange, Reference Priced, and Differentiated. I discussed the influences of FTA for each type and for both exports and imports. My findings are that, first, there is indeed a positive effect of FTA for Taiwan, and the effect would be strongerin the long run (over 3 years) as compared to the short run (within 3 years). After categorizing the products into three categories, I find that the FTAshave significant effects on imports of goods in the organized exchange categoryand exports of goodsin the reference priced and differentiated goods categories. Furthermore, the magnitude of short-run and long-run impacts also vary by categories. The FTAs have significant short-run effects on imports of goods in the organized exchange category and long-run effects on exports of goods in the differentiated categories.