Beyond tariffs: The heterogeneous impact of trade facilitation on technology-intensive trade in Asean+3

Abstract

Amidst deep economic integration in the ASEAN+3 region, traditional trade barriers such as tariffs have been substantially reduced, yet overall trade costs remain a significant impediment. This study investigates the contemporary drivers of trade in the region, seeking to provide an empirically grounded solution to a second-generation policy paradox: while tariff reduction has largely exhausted its utility, a chasm has opened between de jure openness and de facto trade friction. Using a detailed sector-level panel dataset from 2017-2022 and a structural gravity model estimated with the Poisson Pseudo-Maximum Likelihood (PPML) estimator and high-dimensional fixed effects (HDFE), we present two main findings that address this dilemma. First, we demonstrate that trade facilitation efforts in the importing country, as measured by the OECD Trade Facilitation Indicators (TFIs), are a decisive factor, exerting a positive and highly statistically significant effect on trade flows. In contrast, the impacts of tariffs and general institutional indicators are found to be negligible, confirming that procedural and logistical costs now represent the primary impediment to the seamless flow of goods required by intricate Global Value Chains (GVCs). Second, and our most novel contribution, we reveal that this effect is profoundly heterogeneous: the benefits of improved trade facilitation are systematically amplified for higher-technology sectors. This finding aligns with the theory that these sectors are disproportionately organized within time-sensitive GVCs and are thus the greatest beneficiaries when such frictions are reduced. This study reframes trade facilitation not merely as a trade policy but as a strategic industrial policy, enabling nations to attract investment and upgrade their position in global value chains.