A Free Trade Agreement with a Giant. A Descriptive Comparative Analysis of Iceland‘s Exports to China

The objective of this thesis is to examine Iceland’s export performance to China before and after the establishment of the 2014 Free Trade Agreement with Iceland. Existing literature, both established theories and previous empirical work, suggests that trade liberalization and free trade agreements are generally associated with increased trade, but their effects on small economies engaging with the large economies through free trade agreements remain limited. To explore this gap, the thesis employs a descriptive comparative analysis to examine Icelandic export trends to China. The thesis uses annual export data of goods from 2010 to 2024 to compare Iceland’s export trends to China with selected comparison countries in Europe and North America which do not have a free trade agreement with China though descriptive analysis of export levels and cumulative growth. The thesis also employs a benchmark comparison with Japan to examine whether export trends are part of regional trends in East Asia. The results suggest that Iceland’s exports to China increased following the agreement but also exhibit volatility and year-to-year fluctuations. Iceland’s export levels remain higher than most of the comparison countries throughout all periods. However, similar export trends are observed in three of the comparison countries, suggesting Iceland’s export growth is not solely related to the agreement. The findings indicate that small economies may experience export growth and improved market access through free trade agreements with larger economies, but also possibly increased exposure and volatility.