Hong Kong CEPA's Effects In Trade Flows Between Mainland China And Hong Kong

After Hong Kong CEPA's bringing into effect, export to Mainland China shows a zooming trend, but which is unsteady. Considering this situation, the change of trade flows between Hong Kong and China Mainland is going to be analyzed on the basis of gravity model in the dissertation, to explain the institutional arrangement's effect in trade flows and to bring forward to some policy suggestions.In this dissertation, the details of stipulation about tariff's reduction in Hong Kong CEPA arrangement is simply introduced, and then the gravity equation is made according to the monthly data during the period from the year 2003 to the year 2006. Such a conclusion is made that the effect of Hong Kong CEPA in trade flows between Hong Kong and Mainland China is not significant, and the increasing of Mainland's GDP and import demand are the compelling factors. The reasons are as following:First of all, the custom union effects do not exist after the execution of Hong Kong CEPA;Then, similar comparative advantages between Hong Kong and Mainland China have restricted the increase of trade flows.In order to submit the policy suggestions, the export potential is made showing that trade insufficiency exists between the two areas, and especially in the year 2006, the situation of trade insufficiency deteriorates. So such suggestions are listed in the following:Firstly, structure switch is needed to achieve the comparative advantages' complementarity.Secondly, make use of the advantage of Hong Kong's capital sufficiency.Finally, emphasize particularly on the institutional arrangement for trade in service.