Here, an additional explanation of trade creation and trade diversion effects is considered necessary. Firstly, the “export diversion
effects” and “import diversion effects” mentioned above are different from the definitions proposed by Viner (1950). The term
“export trade diversion” was first described by Endoh (1999) and “import trade diversion” was defined by Balassa (1967). According
to Carrère (2006) and Martínez-Zarzoso et al. (2009), one observation alone of intra-bloc trade (ϕ1) is insufficient to confirm whether
or not there is net trade creation in a free trade area because, for example, an increase in intra-bloc exports (ϕ1 N 0) may be
accompanied by a reduction in imports from extra-bloc countries (ϕ3 b 0). These trade creation and diversion effects may offset each
other. Hence, besides the coefficient of FTA_1ijt, we still need to examine the magnitudes and directions of trade among member and
non-member countries (i.e. ϕ2, ϕ3). Let us assume ϕ1 N 0 and ϕ2 N 0 which denotes that trade creation is accompanied by an increase
in exports from intra-bloc countries to extra-bloc countries. This can be described as pure trade creation in the ACFTA. However, a
positive ϕ1 accompanied by a negative ϕ2 denotes a combination of trade creation effects and export diversion effects. Here, if ϕ1 N ϕ2,
we can conclude, despite trade creation effects being offset to a certain extent by export diversion effects, trade creation still prevails.
Conversely, the case of ϕ1 b ϕ2 indicates a dominant export diversion effect representing a welfare loss on behalf of member