The new U.S. trans-ocean free trade initiatives: estimating export and FDI potentials from dynamic panel data models

The USA has recently launched new trans-ocean free trade initiatives with Australia, the ASEAN, the Southern African Customs Union (SACU), as well as Middle-East and North African (MENA) countries. This paper provides the first comparative estimation of trade and FDI potentials between the USA and these new partner countries. We first derive a dynamic two-equation trade and FDI model, which is afterwards estimated with GMM. Trade and FDI potentials are then calculated from these models' residuals with an out-of-sample technique. Results highlight significant US trade and FDI potential regarding Maghreb countries, Indonesia, as well as SACU. However, the free trade initiative with most ASEAN countries is expected to have limited effects, given that these countries have already outstripped their potential trade and FDI flows with the USA.