The Impact Of CEPA On The Trade Of The Mainland And Hong Kong: A Theoretical And Empirical Study

In the world today facing regional economic integration, China also actively participated in regional economic cooperation and promoted the establishment and development of those organizations. In this thesis, the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) is considered as a research object to study the trade impact on the mainland and Hong Kong by the implementation of CEPA, so as to make policy recommendations for better acting CEPA.In the part of theoretical study, the thesis analyzed the trade creation and trade diversion effect of CEPA on the mainland and Hong Kong. In the part of empirical study, the thesis measures the trade creation and trade diversion effect by CEPA on the mainland and Hong Kong respectively through the panel data regression of the Gravity Model. The results show that as for Hong Kong, the net trade creation effect is positive, though a small amount. Specifically speaking, the expansion of trade between the mainland and Hong Kong brought about by the implementation of CEPA, not only comes from import substitution from the mainland instead of production in Hong Kong, but also comes from import substitution from the mainland instead of from other countries, while the former is more than the latter. That is to say, the implementation of CEPA creates more demand for the products in the mainland by Hong Kong. As for the mainland, there is no trade diversion effect, and net trade creation effect is positive. The implementation of CEPA creates more demand for products in Hong Kong by the mainland, which is the substitution of its own production. The above phenomenon is mainly because the mainland and Hong Kong's trade dependence on each other is different.Secondly, the author expands the traditional Gravity Model to do annual cross-section regression. It is interpreted that, the promotion effect of CEPA on Hong Kong is much greater than that on the mainland. And the promotion effect on Hong Kong is more credible. However, apart from 2007, the promoting role of CEPA on the mainland gradually increased, reaching its peak in 2006. Despite that the promoting role of CEPA on Hong Kong is great, which declines in small amount every year, with the highest point in the first year of 2004.