A Determination Of The Trade Impacts Of The Australia-United States Free Trade Agreement

Abstract

This paper seeks to determine the impact of the Australia-United States Free Trade Agreement (AUSFTA) on the flow of trade between Australia and the United States. To accomplish this, time series data were gathered for 10 SITC REV. 1(0-9) classifications for the years 1985-2009. These data were then sorted into three sub-classes (by direction of trade flow): 1) U.S. exports for that particular SITC class to Australia, 2) vice versa, and then 3) total trade volume for that particular sub-class between the two nations. These three classifications for each SITC class were then regressed against the explanatory variables of GDP (both Australian/U.S.), Population (both Australian/U.S.), the Relative Exchange Rate (AU$/US$), and a dummy trade agreement variable, AUSFTA. The results suggest that AUSFTA has been a greater trade creation catalyst for Australia than for the United States. In fact, for the United States, a greater level of trade diversion has been the result.