THE EFFECTS OF THE ASEAN-CHINA FREE TRADE AREA (ACFTA) ON TRADE: CREATION AND DIVERSION IN THE CREATIVE ECONOMY SUBSECTORS

Abstract This study investigates the effects of trade creation and trade diversion on creative economy subsectors following the implementation of the ASEAN-China Free Trade Area (ACFTA). To do so, it employs a gravity model that incorporates common language, religious composition, and cultural identity similarity as explanatory variables. The analysis covers 11 ACFTA member countries and 18 non-member trading partners over the period 2002–2020. The empirical model is estimated using the Poisson Pseudo-Maximum Likelihood (PPML) method to address zero trade flows and heteroscedasticity. The results indicate that the implementation of ACFTA has generated trade diversion across all creative economy subsectors. They also show that cultural factors significantly influence trade in creative economy goods. Greater similarity in cultural identity and language is associated with higher bilateral trade volumes, whereas the opposite relationship is observed for religious similarity. These findings suggest that ACFTA provisions should be recalibrated to reduce non-tariff frictions and strengthen critical sectoral areas, including intellectual property enforcement, e-commerce, services and talent mobility, so that the benefits of integration can be distributed more evenly among member countries. The study contributes to the literature by providing sector-specific evidence on both intra-bloc and extra-bloc effects, while also integrating measures of intangible distance into the evaluation of free trade agreements.