Impact of diagonal cumulation rule on FTA utilization: Evidence from bilateral and multilateral FTAs between Japan and Thailand

• We empirically investigate the effect of diagonal cumulation on FTA utilization.
• We explore Thai exports to Japan under two kinds of FTA schemes.
• Our estimates show around 4% trade creation effect of diagonal cumulation.
• These are much smaller than the estimates in the previous studies.

In this paper, we empirically investigate the effect of diagonal cumulation on free trade agreement (FTA) utilization by exploring Thai exports to Japan under two kinds of FTA schemes. While the one scheme adopts bilateral cumulation, the other scheme does diagonal cumulation. Comparing trade under these two kinds of FTAs, we can examine the effect of diagonal cumulation without relying on not only the variation in cumulation rules across country pairs but also the variation across years. In short, our estimates do not suffer from biases from time-variant elements and country pair-specific elements. As a result, our estimates show around 4% trade creation effect of diagonal cumulation, which is much smaller than the estimates in the previous studies (around 15%).