Analysis of the Economic Impact of ECFA on Taiwan Based on Event Analysis Method

Abstract

On August 7, 2010, the leaders of the SEF and ARATS signed the economic cooperation framework agreement (ECFA). Two sides of the Taiwan Straits have obtained the preliminary framework arrangement for the negotiation of free trade agreements between the two economies. However，in recent years, public opinion has often criticized ECFA and questioned its implementation effect. This paper response to this query by quoting the gravity model and proposing the relative contribution rate index of GDP growth, theoretically explains that the increase of exports to the mainland can bring possible excess growth for the export-oriented economy of Taiwan (The Taiwan referred to in this article refers to the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu under WTO regulations). After that, this paper selects the nominal GDP, employment rate and foreign trade volume data of the basket of nine Asia Pacific region developed countries in 13 years before and after the implementation of ECFA, and uses OLS estimation and optimized event analysis method to model. The results show that: (1) There is a strong correlation between the changes of economic indicators of Taiwan and the major developed economies in the Asia Pacific from 1997 to 2010, and there may be similar economic growth patterns. (2) After the signing of the ECFA node, Taiwan's economy showed the characteristics of cumulative excess return measured by three indicators: nominal GDP, employment rate and foreign trade volume. In particular, the cumulative excess return measured by GDP is significant. (3) After the signing of the ECFA during the reign of Ma Ying-jeou, Taiwan's economy's excess cumulative return was stable and significant, while this cumulative return suffered losses during the reign of Tsai Ing-wen. (4) After entering the long-term, the deficiencies of the event analysis method under the influence of disturbance events have gradually become prominent