Introduction
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Shipping connectivity: Logistics and transport inefficiencies negatively affect trading activities because they result in longer voyage times and higher costs in handling and delivering goods. While tariff-based trade barriers are being reduced within multilateral agreements and the development of trading blocs, the contribution of shipping connectivity to the flow of intra trade and extra trade is a pending concern that merits further attention.
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Intra-trade: Free trade agreements are one of the most common schemes of economic integration. When countries take part in a free trade agreement, they are required to remove or reduce tariff-based barriers. Increasingly, free trade agreements also incorporate aspects of trade facilitation (e.g., single window customs clearance). With the existence of a free trade agreement, trading among member countries (i.e. intra-trade) is expected to increase.
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Extra-trade: A beneficial spillover effect occurs through the enhancement of shipping connectivity from intra-trade growth. The development in shipping connectivity that results from growing regional integration can promote trade flow beyond member countries (i.e. extra-trade).
Conceptualization
Shipping connectivity
Intra-trade
Extra-trade
Research model
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Hypothesis 1: Shipping connectivity is positively correlated with intra-trade.Trade diversion is the replacement of cheaper imports from non-member countries with products of member countries due to a free trade agreement (Balassa 1967; Richardon 1993). Trade diversion occurs when free trade agreements among member countries shift the trade inflow from non-number to member countries in a trading bloc to increase the flow of intra-trade. When member countries perform trading activities among themselves in a trading bloc (i.e., intra-trade), this is economic regionalism which contributes to the development of trade protectionism (Lim 2009; Schiff and Winters 2003; Ruggie 1994). Richardon (1993) also pointed out the consequences of trade protection resultant of free trade agreements on non-member countries (extra-trade). Nevertheless, the number of free trade agreements are increasing. It is therefore important to examine the relationship between free trade agreements and extra-trade.Conventional theories on preferential trading have focused on the trade-offs between trade creation on intra-trade and trade diversion on extra-trade. However the role of shipping connectivity in facilitating trade has not been explored in detail. Shipping connectivity of a country involves shipping service coverage and ability of transport infrastructures to support trading activities (Korinek and Sourdin, 2011). Improvements in physical transport infrastructures therefore improve shipping connectivity and enhance accessibility in terms of sailing frequency and shorter transit times (Limao and Venables 2001; Wood et al., 2003). Trade-related infrastructures allow increased linkages with the global supply chain to reach trading partners for both intra-trade and extra-trade. Modern container ports, which have the capability of accommodating larger and more vessels, attract cargo flow from member countries as well as other non-members, and intra-regional shipping services can de facto serve as feedering services which also serve extra-regional trade. Hence, the following hypothesis is developed:
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Hypothesis 2: Shipping connectivity is positively correlated with extra-trade.The effects of trade creation and trade diversion on the development of trading blocs are extensively discussed in various contexts (Endoh 1999; Pelzman 1977; Wylie 1995). International trade is strongly linked to economic development through the mechanisms of capital accumulation, technological change, and human resource accumulation (Lucas 1988). Due to the growth in intra trade, overall efficiency will be improved not only in terms of production but also various trade facilitation activities which are essential for transporting goods from importing to exporting countries. Here, shipping connectivity plays an important role in facilitating trade activities. With the formulation of free trade agreements, international trade now involves intra-trade and extra-trade. Intra-trade is a mediator that governs the relationship between shipping connectivity and extra-trade when the following conditions are met: (1) shipping connectivity affects intra-trade flow, (2) shipping connectivity affects extra-trade, and (3) intra-trade affects extra-trade, and the effect of shipping connectivity (on the third condition) must be smaller than the effect on the second condition (Baron and Kenny 1986). Accordingly, the third hypothesis is developed as follows:
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Hypothesis 3: Intra-trade mediates the relationship between shipping connectivity and extra-trade.Based on this conceptualization, the research model proposes: (1) the concept of CTR, in which shipping connectivity is positively correlated with intra-trade on the one hand and extra-trade on the other hand, and (2) that intra-trade has a mediating effect in governing the relationship between shipping connectivity and extra-trade. In practice, the causalities will always go on in both directions between all three components shown in Fig. 2.×More demand from extra-trade will encourage improved shipping connectivity, and changes in extra-trade will have a bearing on intra-trade. In our study, however, we limit the focus to the following qualifiers:
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More intra-trade will have a positive effect on shipping connectivity and an effect on extra trade through trade creation and trade diversion.
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Improved shipping connectivity will have a positive impact on both intra-trade and extra-trade.
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Methodology
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correlation and regression analyses were used to examine the relationships among the variables of shipping connectivity, intra-trade and extra-trade,
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CTR was examined with formulated equations, and
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the mediating effect of intra-trade was tested on the relationship between shipping connectivity and extra-trade with three regression equations (Baron and Kenny (1986).
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Shipping connectivity was measured by using the LSCI of the United Nations Conference on Trade and Development (UNCTAD). The LSCI of the UNCTAD has five components: (1) the number of container ships, (2) their combined container carrying capacity, (3) the number of shipping companies that provide shipping services, (4) the number of liner shipping services, and (5) the size of the largest ship deployed for services to and from the country’s seaports. We used 10 years (2005–2014) of data from nine ASEAN countries (Laos is land-locked and not available on the LSCI). The sample size (n) was 9 × 10 (i.e., 90). The data for shipping connectivity were collected from UNCTAD stat 2016.
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Intra-ASEAN denotes the trading activities among the ten ASEAN countries. Extra-ASEAN denotes the trading activities of the ten ASEAN countries with trading partners beyond the ASEAN members. The sample size (n) was 10 × 10 (i.e., 100). The data of the intra-trade and extra-trade of ASEAN were collected from ASEAN (The intra-trade and extra-trade of ASEAN).
Analysis and results
Correlation and regression analysis
s
a
|
t
ia
|
t
ea
| |
---|---|---|---|
s
a
| 1.00 | ||
t
ia
| 0.932a
| 1.00 | |
t
ea
| 0.986a
| 0.969a
| 1.00 |
Connectivity and trade relativity
Mediating effect of intra-trade
Model | Path | Regression coefficient |
p value |
---|---|---|---|
1 | Sa → tia
| 0.932 | <0.01 |
2 | Sa → tea
| 0.986 | <0.01 |
3 | tia → tea
| 0.969 | <0.01 |